
                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
         (Mark One)
           [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
                   For the fiscal year ended December 31, 1997
                                       OR
            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
           For the transition period from ___________ to ____________
                           Commission File No. 0-20292
                                Ampex Corporation
             (Exact name of Registrant as specified in its charter)
         Delaware                                     13-3667696
       (State of incorporation)          (I.R.S. employer identification number)
                                  500 Broadway
                       Redwood City, California 94063-3199
          (Address of principal executive offices, including zip code)
                                 (650) 367-2011
              (Registrant's telephone number, including area code)
          ------------------------------------------------------------

           Securities registered pursuant to Section 12(b) of the Act:
                 Class A Common Stock, par value $.01 per share

           Securities registered pursuant to Section 12(g) of the Act:

Indicate  by check  mark  whether  the  Registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The   approximate   aggregate   market   value  of  the  voting  stock  held  by
non-affiliates of the Registrant as of January 30, 1998 was $115,486,648,  based
on a price of $3.0625 per share, which was the closing price of the Registrant's
Class A Common Stock on the American  Stock  Exchange on that date.  The Class A
Common Stock is the only class of voting stock outstanding.

As of  January  30,  1998 there were  45,973,517  outstanding  shares of Class A
Common Stock and no outstanding shares of Class C Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's  Proxy Statement for its 1998 Annual Meeting of Stockholders is
incorporated  by reference  into Part III (Items 10, 11, 12 and 13) of this Form
10-K.

679833.6

<PAGE>




                                AMPEX CORPORATION

                                    FORM 10-K

                          Year Ended December 31, 1997
                                      INDEX

<TABLE>
<CAPTION>
                                                                                                                       Page
<S>               <C>                                                                                                    <C>
PART I                                                                                                                    1
ITEM 1.           BUSINESS                                                                                                1
ITEM 2.           PROPERTIES                                                                                             15
ITEM 3.           LEGAL PROCEEDINGS                                                                                      16
ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                    17
ITEM 4A.          EXECUTIVE OFFICERS OF THE REGISTRANT                                                                   17

PART II                                                                                                                  18
ITEM 5.           MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS                                                                                    18

ITEM 6.           SELECTED FINANCIAL DATA                                                                                19
ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS                                                                              19
ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                            25
ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE                                                                    25

PART III                                                                                                                 25
ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY                                                        25
ITEM 11.          EXECUTIVE COMPENSATION                                                                                 25
ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT                                                                                             25
ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                         26

PART IV                                                                                                                  26
ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                  REPORTS ON FORM 8-K                                                                                    26
                  SIGNATURES AND POWER OF ATTORNEY                                                                       33
</TABLE>


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                                     PART I

ITEM 1.           BUSINESS

Introduction

         Ampex Corporation  ("Ampex" or the "Company") is a leading innovator in
the design and manufacture of high performance  scanning  recording  devices and
digital image processors.  Its specialized  recording  products are used for the
acquisition of data at high speeds under difficult conditions,  such as those in
aircraft,  and for the storage of mass computer  data,  especially  images.  The
Company  has  significant   experience  in  digital  image  processing  and  has
approximately  1,000  patents  and  patent  applications  in this  field  and in
recording  technology,  from which it has derived significant  licensing income.
The  Company's  principal  licensees  are the  manufacturers  of consumer  video
products worldwide.

         The Company's  principal  product  groups are its mass data storage and
instrumentation products and its professional video and other products. The mass
data storage and  instrumentation  products  group  includes (i) 19-  millimeter
scanning recorders and library systems (DST(R) and DIS(TM) products) and related
tape and after-market  equipment;  and (ii) data acquisition and instrumentation
products (primarily  DCRsi(TM)  instrumentation  recorders) and related tape and
after-market  equipment.  The Company's  professional  video and other  products
group includes primarily its DCT(R) video recorders and image processing systems
and related tape products and television  aftermarket  equipment.  The Company's
DST tape drives and robotic library systems for computer mass data storage offer
superior data access times,  rapid data transfer rates and low cost per megabyte
of  storage.   Ampex  DIS  instrumentation   recorders  allow  users  to  record
instrumentation  data on DST tape cartridges,  so that the data can be used in a
computer environment as well as in an instrumentation  environment.  Ampex DCRsi
instrumentation  recorders are designed for demanding aeronautical  applications
such as commercial and military  flight testing,  as well as other  applications
involving  comparable  data-gathering  challenges in extreme  environments.  The
Company's DCT video recording  products have been developed for high-end digital
component  recording  applications in entertainment  and imaging markets.  These
products are more fully described below under "Products."

         During its 54-year  history,  Ampex has developed  extensive  technical
expertise in electronic storage, processing and retrieval of digital images. The
Company  participates at the high end of the video market with its DCT broadcast
video products which were, in 1992,  re-engineered to incorporate  digital image
compression.  The major  industry  market for video  technology  is in  consumer
products.  Ampex has licensed its patents for consumer  markets since 1968,  and
signed two new licenses in 1997. In the years 1993 through  1997,  the Company's
licensing  income  averaged  $16.3 million per year,  and in fiscal 1997 totaled
$12.6 million.  Royalty income has fluctuated  materially  from year to year and
there is no assurance that Ampex will continue to generate  comparable levels of
licensing income in future years.

         The  Company  was  incorporated  in  Delaware  in  January  1992 as the
successor to a business originally  organized in 1944.  References to "Ampex" or
the "Company" include subsidiaries and predecessors of Ampex Corporation, unless
the context indicates otherwise.  The principal executive offices of the Company
are located at 500 Broadway,  Redwood City,  California 94063, and its telephone
number is (650)  367-2011.  The Company's  Class A Common Stock is traded on the
American Stock Exchange under the symbol "AXC."

Recent Developments

         In January 1998 the Company issued and sold to a group of institutional
investors  its 12% Senior Notes due March 15, 2003 (the  "Senior  Notes") in the
aggregate principal amount of $30,000,000, together with warrants to purchase up
to 1,020,000 shares of the Class A Common Stock of the Company (the "Warrants").
As  a  result  of  the  issuance  of  the  Senior  Notes,  the  Company's  total
indebtedness  and debt service  obligations  have increased  substantially  from
prior levels. See "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations  --  Liquidity  and Capital  Resources."  The Company
expects to use the net proceeds of the Senior Notes

679833.6


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(approximately  $28.5  million after  deduction of estimated  fees and expenses)
primarily  for working  capital  purposes,  expansion of its  existing  business
lines,  and possible  investments  in, or acquisitions  of, new businesses.  The
Company has not entered into any  negotiations,  arrangements or  understandings
with any  acquisition  candidates  at the date of this  Report,  except that the
Company has been in  discussions  regarding the  acquisition of the seismic data
storage and related  software  and  marketing  business and assets of one of its
resellers  in the oil and gas  exploration  industry.  The  acquisition  of such
business and assets, if completed,  would not be material to the Company.  There
can be no assurance that the Company will successfully complete this acquisition
or any other  acquisitions  of  businesses  or that the Company will realize any
financial   benefit   therefrom.   See   "Markets  --  Mass  Data   Storage  and
Instrumentation Products -- 19-millimeter  Products," "-- Research,  Development
and  Engineering"  and  "Management's   Discussion  and  Analysis  of  Financial
Condition and Results of Operations -- Results of Operations for the Three Years
Ended December 31, 1997."

Forward-Looking Statements

         This Form 10-K contains  predictions,  projections and other statements
about the future that are intended to be "forward-looking statements" within the
meaning  of  the  Private  Securities   Litigation  Reform  Act  of  1995.  Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other  important  factors that could cause the actual  results,  performance  or
achievements of the Company,  or industry results, to differ materially from any
future  results,  performance  or  achievements  expressed  or  implied  by such
forward-looking  statements.  Such  risks,  uncertainties  and  other  important
factors include, among others:  potential inaccuracy of future sales and expense
forecasts; effects of increased inventories;  potential inability of the Company
to  execute  its  marketing,   acquisition,   investment,  licensing  and  other
strategies; potential inability of the Company to integrate acquired businesses;
effects of existing and emerging competition and industry conditions; decline in
sales to the government;  declining sales of professional video products;  rapid
technological changes and risks of new product and business development efforts;
the  development  of  application  software  for  its  19-millimeter   products;
international  operating  difficulties;  redemption of the Company's outstanding
Noncumulative  Preferred  Stock;  possible  future  issuances  of debt or equity
securities; and the Company's liquidity and anticipated interest expenses. These
forward-looking  statements speak only as of the date of this Report. Statements
herein with respect to the Company's  future  strategies,  policies or practices
are subject to change at any time without  prior  notice to security  holders of
the  Company,  and the  Company  disclaims  any  obligation  or  undertaking  to
disseminate updates or revisions of any forward-looking  statements contained or
incorporated  herein to reflect any change in the  Company's  expectations  with
regard thereto or any change in events, conditions or circumstances on which any
such  statement  is  based.  Each  forward-looking  statement  that the  Company
believes  is  material  is  accompanied  by one or  more  cautionary  statements
identifying  important  factors  that  could  cause  actual  results  to  differ
materially from those described in the forward-looking statement. The cautionary
statements  are set forth  following the  forward-looking  statement,  and/or in
other  sections  of this Form  10-K.  IN  ASSESSING  FORWARD-LOOKING  STATEMENTS
CONTAINED IN THIS FORM 10-K,  READERS ARE URGED TO READ CAREFULLY ALL CAUTIONARY
STATEMENTS -- INCLUDING THOSE CONTAINED IN OTHER SECTIONS OF THIS FORM 10-K.

Products

         As stated above in  "Introduction,"  the  Company's  principal  product
groups are its mass data storage and  instrumentation  products  (including DST,
DIS and DCRsi) and its  professional  video and other products  (including DCT).
For information  concerning net sales for each product group, see  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Mass Data Storage and Instrumentation Products

         19-millimeter  Products.  In 1992,  Ampex entered the  high-performance
mass data  storage  market  with its DST series of  19-millimeter  data  storage
products, including tape drives and robotic library systems. Based on its

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own evaluation and that of outside sources, the Company believes its DST and DIS
mass data storage products offer a price-performance  advantage over alternative
magnetic,  optical,  solid state or disk-based  storage  systems now  available,
providing  fast data access times,  rapid data transfer  rates and extremely low
cost per megabyte of storage.

         Access time is one of the most important sustainable  advantages of DST
products compared to alternative  tape-based  storage systems.  Older tape-based
storage products achieve low-cost storage but trade off accessibility; since the
data stored is not available for most online or near-online  applications,  such
systems are generally limited to back-up and archival storage applications.  DST
products, in contrast, combine low storage cost per megabyte with fast access to
rapidly transferable information. DST products use software logic that enables a
library or even a single tape drive to organize  information  using  partitions,
much as disk drives do.  Individual  segments  can then be accessed  quickly and
updated  independently.  This proprietary Ampex technology,  introduced in 1994,
gives DST products the  performance  of a digital tape drive and the  efficiency
and access speed of  partitioned  memory.  DST systems  also provide  rapid data
transfer  rates that  exceed the speed of other mass  storage  products  such as
optical disks, allowing a user to download stored information to a computer at a
sustained rate of 15 megabytes per second  ("MB/sec"),  with an option available
to increase to a rate of 20 MB/sec.

         DST and DIS tape drives use core technology  developed by Ampex for its
digital  video  recorders.  The  drives use  high-density  metal  particle  tape
cartridges, which are available in a range of sizes providing storage capacities
from 25 to 165 gigabytes  ("GB") per cartridge in single density format and from
50 to 330 GB per  cartridge in double  density  format.  DST  automated  library
systems  incorporate  multiple tape  cartridges and tape drives and provide from
1.2 to 12.8 terabytes ("TB") of storage capacity while occupying only a fraction
of the floor space required by competing  storage systems.  The Company recently
announced  the  availability  of expansion  modules which can expand DST library
storage capacity in virtually unlimited increments.

         Ampex's  single-density DST product line currently includes the DST 310
tape drive,  the DST 410 automated  cartridge  library and the DST 810 automated
library  system.  The DST 310 is a single  cartridge  tape drive  that  provides
convenient  and fast backup for  applications  such as large  databases  or disk
arrays.  The DST 310 is capable of accepting 25 GB, 75 GB and 165 GB cartridges.
The DST 410  automated  cartridge  library  is an entry-  level  library  with a
storage  capacity of up to 1.2 TB in less than eight  square feet of space.  The
DST 810  automated  library is designed to combine from one to four tape drives,
and  features  a  storage  capacity  of 6.4 TB.  The DST 810  library  system is
optimized  for large  file size  applications  and,  accordingly,  is suited for
image-based  document  storage,  medical  records,  news  archives,  oil and gas
seismic  data and  CAD/CAM  image  data,  as well as  potential  video-on-demand
applications.  These products can deliver a sustained rate of 15 MB/sec across a
SCSI-2 interface,  search speeds of up to 1600 MB/sec, an average access time of
less than 16 seconds and capacity of up to 165 GB on a single cartridge.

         In the first  quarter  of 1997,  the  Company  began  shipping  its new
"double-density"  versions of its 19- millimeter  data storage product line. The
DST 310,  DST 410 and DST 810  products are all  available  with double  density
cartridges, as the DST 312, DST 412 and DST 812 products,  respectively. The new
versions double the amount of data that can be stored on a single cartridge with
a  corresponding  reduction in the cost per megabyte of the Company's  mass data
storage  products.  The DST 312 tape  drive  can  hold 50 GB,  150 GB and 330 GB
cartridges,  and the DST 412 library can store up to 2.4 TB of data. The DST 812
library  system  can store 12.8 TB of data at a cost of  approximately  $.02 per
megabyte.  Although the new versions are intended to enhance the  performance of
the Company's data storage products,  the Company believes that the availability
of these new versions has  contributed  to the decline in sales of the Company's
existing  19-millimeter  data storage  products.  Ampex is currently  working to
double the per-cartridge capacity of its mass data storage products again which,
if successful, could permit the storage of as much as 660 GB of data on a single
cartridge.  The  Company  believes  that this will  enable  it to  maintain  its
relative cost advantage as per-megabyte costs of competing storage technologies,
such as disk drives,  continue to decline.  There can be no assurance that these
efforts  will be  successful  or, if they are,  that  future  sales  will not be
adversely affected if the Company  experiences any product development delays or
transition  difficulties.  (Subsequent  references  to storage  capacity  of the
Company's  mass storage  products in this Form 10-K refer to the  Company's  new
double-density versions unless the context otherwise specifies.)

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         In October 1997, the Company announced the availability for shipment in
early  1998 of a new  medium-sized  library  product,  the DST 712,  which has a
maximum  storage  capacity  of  5.8 TB in 7.5  square  feet  of  space  and  can
accommodate  one or two tape drives.  This  automated  tape library  product was
designed to fill the gap between the Company's DST 412 and DST 812 products. The
Company also  announced its  intention to offer an expansion  module for the DST
712 and DST 812  products,  which will permit  additional  storage  capacity for
those products on a cost-efficient, incremental basis.

         Although the Company  believes that its DST drives and library  systems
offer significant  advantages over competitive  systems,  there are a variety of
risks  involved in this product line.  The Company's DST products  incorporate a
proprietary  magnetic tape format that is not compatible  with current  industry
standard  formats.  The  Company  has not  licensed  its  tape  format  to other
manufacturers  and as such is the sole source of these  products.  In  addition,
other factors  relating to the markets for these  products and to competition in
these markets may affect future sales of DST products.  See "Markets--Mass  Data
Storage  and   Instrumentation   Products,"   "--Distribution   and  Customers,"
"--Competition," and "--New Product Development and Industry Conditions."

         In 1995, the Company expanded its  19-millimeter  product line with the
introduction  of its DIS  instrumentation  recorders  and library  systems.  The
Company's principal  instrumentation products currently are the DIS 120i and DIS
160i    instrumentation/data    recorders    and   the   DIS   220i    automated
instrumentation/data  library.  The Company's DIS products are designed for mass
storage of instrumentation  data. These recorders use the same 19mm helical scan
recording technology used in the Company's DST products. Data from DIS recorders
can also be stored on DST cartridges, placed in DST libraries and accessed using
DST tape  drives,  so that all the  benefits of DST mass  storage  products  are
available, including rapid, random access to the data for subsequent processing.
The DIS 120i and 160i drives have  capacities  of 25, 75 or 165 GB (depending on
the DST  cartridge  used)  and  record/reproduce  rates of 120 Mb and 160 Mb per
second,   respectively.   The  DIS  220i   automated   library,   which  is  the
instrumentation  version of the DST 410 library, can hold up to 1.2 terabytes of
data.  The  Company  introduced  double  density  versions  of  each  of its DIS
recorders at the time it similarly upgraded its DST product line.

         Data    Acquisition/Instrumentation    Products.    Ampex    has   been
well-established  for  a  number  of  years  as a  supplier  of  instrumentation
recorders.  Ampex has supplied these recorders  primarily to government agencies
for  use  in  data  collection,   satellite   surveillance  and  defense-related
applications,  as  well  as to  defense  contractors  and  aerospace  and  other
industrial   users   primarily  for  test  and   measurement   purposes.   Ampex
instrumentation recorders have been used on almost every advanced commercial and
U.S.  military  aircraft,  as well  as on many  foreign  aircraft.  The  Company
believes they are well-suited to these demanding aeronautical applications,  and
other applications  involving  comparable  data-gathering  challenges in extreme
environments, because of their unmatched performance and reliability.

         The  Company's  principal  data  acquisition/instrumentation   products
currently  are the DCRsi  240,  DCRsi 107 and DCRsi 75  digital  instrumentation
recorders. The DCRsi recorders are rugged, highly reliable and compact recorders
that permit  uninterrupted  data capture over very long periods of time, such as
during test flights of new aircraft. The DCRsi 240 instrumentation  recorder has
the capability of storing 48 GB of data at a record/reproduce  rate of up to 240
megabits ("Mb") per second. The DCRsi 107 instrumentation recorder has a similar
storage capacity and a record/reproduce  rate of 107 Mb per second. During 1995,
the Company  introduced  the DCRsi 75 recorder,  a lower cost DCRsi model with a
record-reproduce  rate of 75 Mb per  second.  Shipments  of DCRsi  75  recorders
commenced in 1996.

         A significant portion of data acquisition and instrumentation  recorder
sales  reflect  purchases  by the  federal  government,  which can be subject to
significant   fluctuations.   See   "Markets--Data   Acquisition/Instrumentation
Recorders." In addition, other factors relating to the markets for the Company's
instrumentation  products and to  competition in these markets may affect future
sales of these products.  See "Distribution and Customers,"  "Competition,"  and
"New Product Development and Industry Conditions."

Professional Video Recording and Other Products

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         The  Company's  DCT  products,  which  employ a  19-millimeter  digital
component video recorder format,  are designed primarily for use in high-quality
post-production applications.  DCT products record in a digital component format
compatible with  "CCIR-601," a worldwide  signal standard for digital  component
television equipment. The Company's DCT 1700d digital tape drive is designed for
high-end  performance,  as its output is not subject to signal  degradation even
during complex layering and special effects  sequences.  In order to process the
higher data volume involved in digital component recording, DCT recorders employ
data compression techniques.

         Ampex also offers a variety of switchers  and systems  products as part
of  the  DCT  product  line,  including  digital  special  effects  systems  and
production  switchers,  that  are used in  connection  with  the  production  of
television  programming.  These  products  focus on the  on-line  segment of the
professional television industry. On-line operations typically require equipment
to operate at high speeds and require the highest picture  quality.  In order to
process video signals at the required  speeds,  Ampex's products employ advanced
proprietary signal processing and other electronic  technologies,  many of which
are also used in the Company's data storage digital  recorder  systems.  Ampex's
switchers and systems products also incorporate  advanced  filtering  techniques
and incorporate significant special purpose software to manipulate,  generate or
combine video signals.

         In the period  1992 to 1994,  the  Company  discontinued  sales of many
older  (primarily  analog)  recorders,  switchers  and systems  products,  which
contributed  to the  decline in sales for this  product  group in recent  years.
Sales  levels have also been  adversely  affected by changes in the  traditional
markets for the Company's  professional  video  products and by the reduction in
the  Company's   distribution   network  for  these  products.   See  "Markets--
Professional Video Recording Products" and "Management's Discussion and Analysis
of Financial  Condition and Results of  Operations -- Results of Operations  for
the Three Years Ended  December 31, 1997 --  Professional  Video  Recording  and
Other  Products."  In 1995,  1996 and 1997,  sales of these  products  consisted
almost exclusively of DCT video recorders and image processing  systems. In view
of the  recent  announcement  of  standards  for  the  digital  transmission  of
television  signals,  Ampex  believes it is unlikely  that such special  purpose
video products will continue to be sold in material quantities. Accordingly, the
Company  expects  that its sales of  products  in this market will be limited to
after-market products and services, and that such sales will continue to decline
in future years. Certain of the Company's DST and DIS products have been used in
professional  video  recording  markets,  and  the  Company  believes  that  the
potential for  increased  sales of its  19-millimeter  products in these markets
could help to offset the decline in sales of its DCT products,  but there can be
no assurance that this will occur.

         The Company's other products are currently  almost entirely  television
after-market  products  (including spare parts) relating to television  products
that the Company now manufactures,  or that it manufactured in prior periods and
continues  to  support.  Ampex's  after-market  activities  have  declined  as a
percentage  of net  sales  in  recent  years as the  Company  has  narrowed  its
professional  television  product  line,  and  many of the  products  that  have
historically  generated  a  significant  portion  of these net sales  (including
Betacam small-format recorder after-market products,  turnkey studio facilities,
mobile vans, computer core memory products and refurbished equipment accepted as
trade-ins on new equipment  sales) have been  discontinued.  Other products also
include   the  sale  of  a  limited   number   of   integrated   circuits.   See
"Markets--Components"  and  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations -- Results of Operations for the Three Years
Ended December 31, 1997 -- Professional Video Recording and Other Products."

Markets

Mass Data Storage and Instrumentation Products

         19-mllimeter  Products. The Company's DST mass data storage systems are
designed  to meet the rapidly  changing  requirements  of the mass data  storage
market. The market for mass storage devices has undergone an evolution in recent
years.  Historically,  mass storage  devices were used to store data off-line as
protection against  catastrophes  affecting on-line storage, to archive data for
record retention  purposes or as a low-cost means of storing  infrequently  used
data.  More  recently  there is a growing  demand for mass storage  devices that
provide  cost-effective  storage  combined with rapid access to data. The demand
for storage devices that can store large amounts of data

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in a readily accessible manner has grown due to two factors.  First,  faster and
lower-cost  computer  processors are generating  more data.  Second,  a steadily
growing percentage of information is created,  stored,  accessed and transmitted
in visual form (such as drawings, pictures, scanned documents and other images),
and the storage of visual  information  requires much greater  capacity than the
storage of text.  For example,  while one page of text  requires  2,000 bytes of
storage, one second of full-color video requires 30,000,000 bytes.

         Despite the rapid  increase in the need for data storage on the part of
most computers  users, the Company believes that its mass storage products offer
such large  capacities and high speeds that they  currently  exceed the capacity
needs  and  retrieval   rates  required  by  the  majority  of  computer  users.
Accordingly,  the Company expects that its sales of these products will continue
to be limited to large and technically  sophisticated  corporations and national
and local government agencies for the foreseeable  future.  Ampex's customers in
these  industries  include  Mobil,  Amoco,  the  FBI,  NASA,  Time  Warner,  Fox
Television and Industrial Light and Magic. The Company also believes that if the
new digital television  standards are widely adopted,  Ampex may be able to sell
its DST and DIS products to customers who historically purchased its specialized
video products.  Ampex's current sales of mass data storage and  instrumentation
products are concentrated at present in three major vertical industry markets --
the oil and gas exploration industry; government; and the digital video industry
organizations.  The Company believes that, whereas in prior years  organizations
involved in the markets  described above maintained large technical staffs which
were capable of integrating  equipment such as the Company's into their existing
computer  facilities,  even the  largest of these  potential  customers  are now
increasingly  likely to purchase complete solutions or even to outsource certain
activities  and to  reduce  their  in-house  technical  staffs.  This  trend  is
unfavorable to companies like Ampex,  which primarily  provide system components
like mass data storage tape drives. The Company has been working to address this
by ensuring that certain  widely used software can interface  with its products.
For example,  the Company is seeking to address  hierarchical storage management
and database backup applications in certain markets,  and its DST 310 tape drive
and  DST 410  and  810  libraries  are now  supported  by  certain  third  party
hierarchical  storage management and UNIX file system back up software packages.
However,  the  Company  cannot  predict the extent to which such  software  will
result in increased sales of DST products.

         In order to capitalize  further on the relatively low cost per megabyte
and rapid retrieval rates of its products,  the Company  believes that it may be
necessary  to offer more  specialized  and  industry-specific  services  than it
currently provides.  Accordingly, the Company intends to expand the integration,
software and other services that it offers,  either by developing these services
internally or by investing or acquiring other entities capable of providing such
services, together with Ampex equipment,  initially in Ampex's existing markets.
Ampex has not reached any understanding with respect to any such acquisitions or
investments, except that it has been in discussions regarding the acquisition of
the seismic data storage and related software and marketing assets of one of its
larger  resellers  in the oil  and gas  exploration  industry.  There  can be no
assurance that the Company will  successfully  complete any such acquisitions or
investments or that the Company will recognize any financial  benefit from them.
Although the emergence of applications  that envision the transmission of video,
graphics and other  images over the Internet or private  networks may create new
markets for the  Company's  data  storage  products,  the  Company's  management
believes that these applications will require bandwidth  improvements to current
information  delivery systems before the information  storage systems offered by
the Company  and others will be  required.  Should  this  technical  obstacle be
overcome and commercial markets ultimately develop, the Company believes that it
will experience aggressive competition from other companies, and there can be no
assurance that the Company will be able to remain  competitive  against products
ultimately offered by such companies.

         Data  Acquisition/Instrumentation  Recorders.  Ampex's DCRsi  recording
drives and  magnetic  media are  designed  to acquire  large  volumes of data in
stressful physical environments,  and are used extensively in airborne and naval
intelligence  acquisition  and for the collection of test data during the design
and  qualification  of  airplanes.  DCRsi  products are used by U.S. and foreign
military and  intelligence  agencies  (including  those of Germany,  Japan,  the
United Kingdom and Russia), as well as by manufacturers of commercial airplanes,
such as Boeing  Corporation,  and by Airbus, the consortium of European airframe
manufacturers. A significant portion of DCRsi products are also sold in versions
that are  intended for use in ground  facilities  for the  long-term  storage or
analysis of data previously collected in mobile environments.

679833.6
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<PAGE>



         The storage  capacity and data transfer  rates of the  Company's  DCRsi
products can be varied continuously from fractions of a megabit per second up to
240  megabits per second on its highest  performance  versions.  These  products
perform  reliably in conditions of extreme  shock and  vibration,  variations in
gravitational  force  and  extremes  of  temperature,  humidity  and  electronic
interference,  such as those found in aircraft,  helicopters and space vehicles.
Because these products are widely used in their target markets,  recordings made
on one machine  can  subsequently  be  reproduced  on other  machines at various
customer locations. In ground-based applications, which generally are less harsh
environments that do not require the ruggedness of a DCRsi recorder, the storage
and analysis  functions of DCRsi products can also be performed by the Company's
19-millimeter DST and DIS mass data storage products.

         The Company  has  supplied  its data  acquisition  and  instrumentation
products  to U.S.  and foreign  government  agencies  for many  years,  and this
continues to be the primary market for the Company's  DCRsi  products.  Sales to
government  agencies  are  subject  to  fluctuation  as a result of  changes  in
government  spending  programs  (including  defense  programs).  Sales  to these
markets could be adversely affected by pressure on government agencies to reduce
spending,  and any material decline in the current level of government purchases
of the Company's products could have a material adverse effect on the Company.

         Professional  Video  Recording  and Other  Products.  The Company's DCT
professional  recording  products  are  designed  to  provide   high-performance
capabilities for customers in entertainment  and imaging markets.  Historically,
Ampex  sold  its  professional  video  products  to  television   companies  and
broadcasters  that  used  them to  produce  or edit  television  commercials  or
programs for broadcast.  More recently,  however,  the production and editing of
television   commercials  and  programs  is  increasingly   being  performed  by
independent  organizations  rather  than by  broadcasters  or  cable  television
companies  themselves.  These services are commonly  known as  "post-production"
services.   Most  of  Ampex's  video   recording   product  sales  are  to  such
post-production  facilities or to motion picture studios that use Ampex products
for  their  in-house  post-production  needs.  Post-production  customers  whose
business  reputations  are based on high picture quality and whose needs include
rapid  editing  capabilities  currently  represent  the  major  market  for  the
Company's DCT digital component video recording  products.  The Company does not
serve the lower end of the post-production market.

         Sales of the Company's video recording products have declined in recent
years as a result of  changing  conditions  in the  traditional  markets for the
Company's  products.  In response to these changes,  the Company has reduced its
product line,  marketing  expenditures  and  distribution  network for its video
products.  In addition,  the Company  believes that the recent  announcement  of
standards for the digital transmission of television signals will cause sales of
its special purpose video products to continue to decline in future years. These
factors  have had and will  continue  to have a negative  impact on sales of the
Company's professional video recording and related aftermarket products.

Distribution and Customers

         The  Company  currently  distributes  all  its  19-millimeter  products
(including DST and DIS recorders)  directly through its internal sales force, as
well as through independent  value-added  resellers.  The Company's DST products
are  sold  to  customers  such  as oil and  gas  companies,  imaging  companies,
information    and    entertainment    delivery    companies   and    broad-band
telecommunications  companies. The Company is also pursuing opportunities in the
market for storage of very large  databases  maintained by many  commercial  and
government entities.

         The Company's  instrumentation  recorders (including its DIS recorders)
are sold primarily to government agencies involved in data collection, satellite
surveillance and defense-related  activities,  as well as to defense contractors
and other  industrial  users for  testing  and  measurement  purposes.  Sales of
instrumentation  recorders are made through the Company's  internal domestic and
international  sales forces, as well as through  independent sales organizations
in foreign markets.

         Ampex's  professional  video recording products are sold principally to
customers  in  entertainment  markets,  including  independent   post-production
houses, broadcast and cable networks, motion picture studios and independent

679833.6
                                       -7-

<PAGE>



television  stations.  The Company  distributes  its video products  through its
internal sales force and through various independent distributors.

         The Company currently operates a total of nine sales offices, including
six in the U.S., one in Germany, one in Japan and one in the United Kingdom.

         Ampex's  sales  to  U.S.   government   agencies  (either  directly  or
indirectly  through  government  contractors)  represented 27.7% of net sales in
fiscal 1997 compared to 18.0% in fiscal 1996 and 14.7% in fiscal 1995.  Products
sold  for  U.S.  government  use  include  primarily  instrumentation  recording
systems.  Sales to government  customers are subject to fluctuations as a result
of  changes  in  government  spending  programs  and are  subject  to  customary
contractual  provisions permitting termination at the government's election. See
"Markets--Mass Data Storage and Instrumentation Products."

         No  single  non-governmental  customer  accounted  for more than 10% of
Ampex's total net sales in 1996 or 1997.

Research, Development and Engineering

         Scanning  recording  systems such as those  developed by Ampex  involve
extremely  complex  technology.  As a  result,  Ampex  has  developed  extensive
expertise in a wide area of technical  disciplines and has developed fundamental
innovations  in digital image  processing,  magnetic  recording  technology  and
channel  electronics.  In 1997, the Company spent approximately 19% of net sales
for research and development programs and engineering costs,  compared to 17% in
1996 and 16% in 1995.  See  "Management's  Discussion  and Analysis of Financial
Condition  and  Results  of  Operations"  and Note 3 of  Notes  to  Consolidated
Financial  Statements.  These continuous  research and development  efforts have
resulted in a substantial  patent portfolio covering not only existing products,
but also  covering  technological  innovations  that may  result or be useful in
future commercial  products.  With respect to current products,  the Company has
allocated a major portion of its research and development budget in recent years
to the 19-millimeter  digital recording  technology included in its DST, DIS and
DCT products.  The Company will continue to fund future  generations of its mass
data storage and  instrumentation  products,  and presently is working to double
the current  per-cartridge  capacity of these  products to 660 GB of data and to
increase  their data transfer  rates above the current 15-20 MB/sec  levels.  If
successful,  these  efforts will further  enhance the cost-  efficiency of these
products.  Ampex  also  plans  to  introduce  lower  cost  versions  of its data
acquisition and  instrumentation  products,  and to improve the ability of these
products to  interface  with other  companies'  products.  The Company  hopes to
develop an expansion  module that will increase the solid state memory  capacity
of its DCRsi products,  thereby  increasing the speed of their data  acquisition
functions.  See "Products--Mass  Data Storage and Instruments" above. Ampex will
also continue researching other new product opportunities that capitalize on its
expertise  and  patented  technology  in  digital  image  processing,   magnetic
recording and channel  electronics.  All of the Company's research,  development
and engineering efforts are subject to certain risks and uncertainties described
below under "New Product Development and Industry  Conditions," and there can be
no assurance that any of these efforts will be  technologically  or commercially
successful.

Keepered Media Development Program

         Ampex has  previously  disclosed that it has been engaged since late in
1994 in a research  and  development  program to  attempt to  commercialize  its
"keepered media" technology for use in the hard disk drives that are attached to
most computers.  A description of this technology and certain  developments  and
uncertainties  related to the development program are set forth in the Company's
1996  Annual  Report on Form 10-K (the "1996  Form  10-K") and its 1996 and 1997
Quarterly  Reports on Form 10-Q. In order to  understand  properly the following
information, it is necessary to refer to these earlier reports.

         As previously  disclosed,  keepered  media  technology  was  originally
intended for use in inductive  head-based  disk drives,  which are rapidly being
replaced by magneto-resistive ("MR") head-based technology. In 1996 and

679833.6
                                       -8-

<PAGE>



1997, the Company spent a significant portion of its research,  development, and
engineering  budget on the development of keepered media. The Company  continues
to believe  that  keepered  media  could  have  commercial  potential.  However,
management has concluded that this technology  will not generate  revenue in the
near  future  and,  accordingly,  the  Company  has  reduced  the  level  of its
development  expenditure for keepered media,  but is continuing its research for
advanced  uses of the  technology.  In the fourth  quarter of 1997,  the Company
incurred charges of $0.9 million in connection with the transfer of the keepered
media program to a long-term  development project. See "Management's  Discussion
and  Analysis of Financial  Condition  and Results of  Operations  -- Results of
Operations for the Three Years Ended December 31, 1997 -- Research,  Development
and Engineering" and "-- Restructuring Changes (Credits)."

         The Company has discontinued its previously disclosed programs relating
to the development of disk drives based on inductive  heads,  and has terminated
one of its previously announced contractual  arrangements for the development of
keepered  media.  The  Company's  research  indicates  that it is unlikely  that
keepered media will offer significant  capacity gains with current generation MR
heads unless such heads are  substantially  modified from current  designs,  and
management  believes it is unlikely  that disk drive  manufacturers  will modify
existing head designs.  However,  as new generations of heads are developed with
higher  capacity,  the  benefits of  keepered  media,  such as improved  thermal
stability,  could become  significant.  The Company is targeting its  continuing
research on keepered media for such higher density uses, but it is impossible to
forecast when, or if, keepered media will be adopted for commercial disk drives.
In addition to continuing  research,  the Company is giving consideration to the
development  of products that would  incorporate  keepered media in its own high
performance digital tape drives. The Company is unable to forecast when or if it
will receive any revenues from keepered media, and the Company's  business plans
do not assume that any such revenue will be received.

Patents, Licenses and Trademarks

         As a result of its on-going research and development expenditures,  the
Company has developed substantial  proprietary  technology,  certain of which it
has elected to patent or to seek to patent.  As of December 31, 1997, Ampex held
over 1,000 patents and patent applications,  including approximately 350 patents
in the U.S.,  approximately  550 corresponding  patents in other countries,  and
approximately 150 U.S. and foreign patent applications  pending. The majority of
these patents and pending patents relate to the Company's recording  technology.
The Company  continually  reviews its patent portfolio and allows  non-strategic
patents to lapse, thereby minimizing substantial renewal fees.

         Ampex has granted  numerous  royalty-bearing  patent  licenses  to, and
holds patent  licenses from,  third parties.  Certain of the Company's  patented
innovations have been adopted for use in mass market consumer products, and as a
result,  the Company  receives  the  majority of its  licensing  royalties  from
foreign  manufacturers  of VCRs and 8-mm  camcorders.  The  Company  intends  to
negotiate  license  agreements with remaining  unlicensed  manufacturers of 8-mm
camcorders,  but  there  can be no  assurance  that any such  licensing  efforts
(including any necessary  litigation) will be successful.  In the last two years
the  Company  has  been  pursuing  licensing  opportunities  in the  market  for
television  receivers,  from which it has not  previously  derived any  material
licensing income. The Company believes it may have several patents that could be
useful in  television  receivers  and is taking  various  steps to enforce them,
including in one instance litigation.

         Since the fourth  quarter of 1995,  the  Company  has been  involved in
patent  infringement  litigation with a major foreign  manufacturer of VHS video
recorders and television  receivers.  In response to the Company's lawsuit, this
manufacturer  filed a lawsuit against Ampex alleging patent  infringement.  This
litigation relates not only to videotape recorders,  a traditional source of the
Company's  royalty  income,  but also to  television  receivers  from  which the
Company has not previously  generated any income. There can be no assurance that
the Company will be  successful  in this  litigation,  but to the extent that it
prevails in this litigation,  it may be able to obtain additional royalty income
from the licensing of its patents that are used in the manufacture of television
receivers. See "Legal Proceedings."


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<PAGE>



         The Company believes that it has other patents, not the subject of this
litigation, that may also be used in the manufacture of television receivers. In
addition, Ampex is evaluating the extent to which its technology may be employed
or useful in video games, and will continue to evaluate  additional  products as
potential licensing opportunities to the extent that its technical and financial
resources permit. Ampex has not granted any licenses under its scanning recorder
patents  specifically  for data  storage  applications,  but it may do so in the
future  if it  determines  that  this  would  support  the  Company's  marketing
strategy.

         It is not possible to predict the amount of royalty income that will be
received in the future. Royalty income has historically fluctuated widely due to
a number of factors that the Company cannot  predict,  such as the extent of use
of the Company's patented  technology by third parties,  the extent to which the
Company must pursue litigation in order to enforce its patents, and the ultimate
success of its licensing and litigation  activities.  Moreover,  there can be no
assurance that the Company will continue to develop  patentable  technology that
will generate significant patent royalties in future years.

         U.S.  patents  are, at present,  in force for a period of 20 years from
the date of  application  and  patents  granted  by  foreign  jurisdictions  are
generally  in  force  for  between  14  years  to 20  years  from  the  date  of
application.  Ampex has obtained its present patents over the course of the past
20 years and,  accordingly,  has  patents in force that will expire from time to
time  over the next 20 years.  Patents  are  important  to the  current  overall
business  of the  Company,  both as a source of  protection  of the  proprietary
technology used in the Company's  current  products,  and as a source of royalty
income.  While results of operations would be adversely  affected by the loss of
patents that generate significant royalty income,  management believes that none
of Ampex's current product lines is materially dependent upon a single patent or
license or group of related patents or licenses, and that timely introduction of
products incorporating new technologies or particularly suited to meet the needs
of a specific  market or customer group is a more  important  determinant of the
success of Ampex's  current  business.  Nevertheless,  there can be no assurance
that the Company will  continue to develop  patentable  technology  that will be
able to generate significant patent royalties in future years to replace patents
as they expire. See "Research, Development and Engineering."

         Ampex regards its trademark  Ampex(R) and the Ampex logo as valuable to
its  businesses.  Ampex has  registered its trademark and logo in the U.S. and a
number of foreign countries.  U.S.  trademark  registrations are generally valid
for an initial term of 10 years and renewable for  subsequent  10-year  periods.
The Company's  former  magnetic tape  subsidiaries  (the "Media"  subsidiaries),
which were sold by the Company in November 1995, have a non-exclusive license to
use the Ampex trademark on their audio, video and instrumentation media products
through July 2000.  Ampex has not granted any other  material  rights to use its
name or logo to any other third party.  Other  trademarks  of Ampex include DCT,
DST, DCRsi and DIS.

Manufacturing

         The  Company's  products  are  manufactured  at Ampex's  facilities  in
Redwood City, California and Colorado Springs,  Colorado.  Products are designed
and engineered primarily in Redwood City, California. Because the Company's mass
data storage products incorporate many of the technologies and components of the
Company's 19mm-based video tape recorders, the manufacturing process of the mass
data storage products has benefited from the existing video recorder  production
facilities and techniques.

         In  January  1996,  the  Company  sold  its  Redwood  City,  California
property, and relocated its manufacturing, administrative and RD&E operations to
smaller  facilities  located on a portion of the property that it leased back at
the time of sale.  In May  1996,  the  Company  sold a portion  of its  Colorado
Springs,  Colorado facility which was not required for current  operations.  See
"Properties."   The  Company  believes  that  its   consolidated   manufacturing
facilities continue to have sufficient  capacity to accommodate  business growth
for its present  products in the  foreseeable  future,  and that the relocations
will not have a long-term adverse effect on the Company's manufacturing capacity
or on its  ability to meet the  customer  demands  for its  products in a timely
manner.


679833.6
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<PAGE>



         The  Company  maintains  insurance,   including  business  interruption
insurance,  that  management  considers to be adequate and  customary  under the
circumstances.  However,  there is no assurance  that the Company will not incur
losses beyond the limits of, or outside the coverage of, its insurance.

Sources of Supply

         Ampex  uses a broad  variety of raw  materials  and  components  in its
manufacturing  operations.  While most  materials  are  readily  available  from
numerous  sources,  Ampex  purchases  certain  components,  such  as  customized
integrated  circuits  and flexible  magnetic  media,  from a single  domestic or
foreign  manufacturer.  Significant  delays in deliveries  of, or defects in the
supply  of,  such  components  could  adversely  affect  Ampex's   manufacturing
operations pending qualification of an alternative  supplier.  In addition,  the
Company produces highly engineered products in relatively small quantities. As a
result,  its  ability  to cause  suppliers  to  continue  production  of certain
products on which the Company  may depend may be limited.  The Company  does not
generally enter into long-term raw material supply contracts.  In addition, many
of the components of Ampex's  products are designed,  developed and manufactured
by Ampex itself, and thus are not readily available from alternative sources.

Fluctuations in Operating Results; Seasonality; Backlog

         Ampex's  sales and  results  of  operations  are  generally  subject to
quarterly and annual fluctuations.  Factors affecting operating results include:
customer ordering patterns;  availability and market acceptance of new products;
timing of significant orders and new product announcements; order cancellations;
receipt of royalty  income;  and numerous  other factors.  Ampex's  revenues are
typically  dependent  upon  receipt  of a  limited  number  of  customer  orders
involving relatively large dollar volumes in any given fiscal period, increasing
the  potential  volatility  of its sales  revenues  from quarter to quarter.  In
addition,   sales   to   government   customers   (primarily   sales   of  DCRsi
instrumentation  products) are subject to fluctuations as a result of changes in
government  spending  programs,  which can materially affect the Company's gross
margin  as well as its  sales.  Sales  of most of the  Company's  products  have
historically  declined  during the first and third  quarters of its fiscal year,
due to seasonal procurement practices of its customers.

         A  substantial  portion  of the  Company's  backlog  at a given time is
normally shipped within one or two quarters thereafter.  Therefore, sales in any
quarter  are  heavily  dependent  on orders  received  in that  quarter  and the
immediately  preceding  quarter.  Ampex's backlog of firm orders at December 31,
1997 was $6.9  million,  compared to $3.4 million at December 31, 1996 and $13.8
million at December 31, 1995. The backlog at December 31, 1997 was approximately
35% of average quarterly net sales,  based on 1997 sales levels.  Ampex does not
generally  include  foreign  orders in backlog  until it has obtained  requisite
export licenses and other  documentation.  Orders may be subject to cancellation
in the event shipments are delayed. For all of the foregoing reasons, results of
a given quarter are not  necessarily  indicative of results to be expected for a
fiscal year.

Competition

         Ampex  encounters  significant  competition in all its product markets.
Although its competitors  vary from product to product,  many are  significantly
larger  companies with greater  financial  resources,  broader product lines and
other competitive advantages.

         Ampex  competes  in the mass  data  storage  market  with a  number  of
well-established  competitors,  such as  IBM,  Storage  Technology  Corporation,
Exabyte  Corporation,  Sony  Corporation  and  Quantum  Corporation,  as well as
smaller companies. In addition,  other manufacturers of scanning video recorders
may seek to enter the mass data storage market in competition  with the Company.
For example,  in 1996, IBM Corporation  announced the general  availability of a
new high-capacity,  high-speed tape storage product designated  "Magstar." Also,
Sony  Corporation in 1995  introduced its DTF tape drive,  which is intended for
the mass data storage  industry.  In the mass data storage  market,  the Company
believes that the principal competitive factors are product performance, cost of
equipment  and media,  product  reliability  and  availability  of  service  and
support. The Company believes its strongest competitive

679833.6
                                      -11-

<PAGE>



advantage  is in the area of product  performance.  However,  DST  products  are
relatively  expensive  in  comparison  to other  competitive  products,  and are
generally  cost-effective  only if the  customer  requires  the  high  level  of
performance and storage  capacity of DST products.  While the Company is working
to reduce the cost of its DST  products,  the prices of other  storage  systems,
such as disk drives,  are also  declining.  In  addition,  although DST products
offer  faster data  access  times than  competing  tape-based  library  systems,
magnetic  disks deliver  faster data access than DST  products.  There can be no
assurance that the Company can compete  successfully on a long-term basis in the
mass data storage market.

         In the  instrumentation  market,  the Company  competes  primarily with
companies that depend on government contracts for a major portion of their sales
in this market,  including Sony, Loral Data Systems,  Datatape  Incorporated and
Metrum  Incorporated.  The number of competitors in this market has decreased in
recent years as the level of government spending in many areas has declined. The
principal  competitive  factors in this  market are cost,  product  reliability,
product performance and the ability to satisfy applicable government procurement
requirements.

         In the professional  video recorder market,  Sony and Panasonic are the
leading  competitors  of the  Company.  Competition  in  this  market  is  based
principally  on design and  manufacturing  expertise,  new product  development,
service,  reliability  and  price.  In the  high end of the  market,  management
believes  that  Ampex  is  competitive  in each of  these  areas,  although  the
Company's  sales of these  products have declined due to the recently  announced
digital  television  transmission  standards.  See "Management's  Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations  --  Results of
Operations  for the Three Years Ended December 31, 1997 -- Mass Data Storage and
Instrumentation Recorders." DCT products are not competitive in the lower end of
the market.  Sales of these  products have been declining in recent years as the
Company has discontinued many of its professional video products.

New Product Development and Industry Conditions

         The data storage,  instrumentation  and video recording  industries are
characterized  by continual  technological  change and the need to introduce new
products and product  upgrades.  This requires a high level of  expenditure  for
research  and  development.  Obsolescence  of  existing  product  lines,  or the
inability to develop and introduce new products,  could have a material  adverse
effect  on sales  and  results  of  operations.  Although  Ampex  has  completed
development  of  its   19-millimeter   digital  video  tape  recorders  and  its
second-generation  mass data storage  drives and robotic  library  systems,  the
Company must continue to invest in research and development  programs to improve
these products and develop new products. No assurance can be given that existing
products will not become  obsolete,  that any new products  will win  commercial
acceptance or that Ampex's new products or technology will be  competitive.  See
"Competition." Furthermore, the introduction of new products or technologies can
be hampered by technical  problems in design,  manufacturing and test procedures
or the occurrence of other unforeseen events.

         Ampex has been manufacturing its 19-millimeter  digital video recorders
since 1989, and has been selling its DCT recorders since 1992. However, sales of
all of its video recording products have declined substantially in recent years,
partly as a result of  changes  in the market  for the  Company's  products,  as
lower-cost small format recorders have replaced  traditional  high-end  products
for many applications.  The Company expects that the traditional markets for its
video products will continue to decline.  Accordingly, any significant increases
in sales of DCT products will depend on the success of the Company's  efforts at
identifying  and  developing  new markets for the products,  and there can be no
assurance that the Company can do so. See "Products-Professional Video Recording
and  Other  Products"  and  "Markets--Professional  Video  Recording  and  Other
Products."

         Sales of the Company's  instrumentation  products can be  significantly
affected by changes in  government  spending  levels.  See  "Markets--Mass  Data
Storage   and   Instrumentation   Products--Data   Acquisition   Instrumentation
Recorders" and "Management's  Discussion and Analysis of Financial Condition and
Results of Operations."


679833.6
                                      -12-

<PAGE>



         The Company  significantly  restructured  its product lines during 1993
and 1994, and the Company has no present plans to discontinue any of its current
principal products.  However,  like all technology  companies,  the Company must
continually  reassess  its  products  based on their  ability  to respond to the
changing demands of the marketplace. If, as a result of such a reassessment, the
Company decides to discontinue any significant  products,  such a decision could
have a material adverse effect on sales and operating results.

International Operations

         Although the Company's net sales revenues include  significant  revenue
from sales to foreign customers, these sales (particularly sales of professional
video products) have been declining in recent years.  Sales to foreign customers
accounted for approximately 31.2% of net sales in fiscal 1997, compared to 34.1%
in fiscal 1996 and 35.6% in 1995.  Foreign  marketing  operations  are conducted
primarily  through  local  distributors  and agents,  with  support from Ampex's
internal marketing and sales organization. See "Distribution and Customers."

         Foreign  operations  are  subject  to the usual  risks  attendant  upon
investments  in foreign  countries,  including  limitations on  repatriation  of
earnings,  restrictive  actions by local  governments,  fluctuations  in foreign
currency  exchange  rates and  nationalization.  Additionally,  export sales are
subject to export regulations and restrictions imposed by the U.S. Department of
State and the U.S. Department of Commerce.

         In certain prior periods,  declines in the value of the U.S.  dollar in
relation  to  certain  foreign   currencies  have  favorably   affected  Ampex's
international  operations,  and in other  periods  the  strength  of the  dollar
relative to such currencies has adversely affected its operations.  Fluctuations
in the value of  international  currencies can be expected to continue to affect
Ampex's  operations in the future,  although the impact will be less significant
than it was in periods with a higher proportion of sales in foreign  currencies.
The Company  currently does not hedge its assets that are denominated in foreign
currencies. U.S. export sales are denominated in U.S. dollars.

         See  Note  20  of  Notes  to  Consolidated   Financial  Statements  for
additional information concerning the Company's foreign operations.

Readiness for Year 2000

         Many existing computer systems,  applications and other control devices
(collectively,  "Systems")  use only two  digits to  identify a year in the date
field,  and will  therefore be unable to reflect  accurately the change from the
year 1999 to the years 2000 and beyond.  Unless  corrected,  these Systems could
fail or create erroneous results,  rendering them unable to process data related
to the year 2000.  The Company relies on its Systems in operating and monitoring
all major aspects of its business,  including financial systems (such as general
ledger,   accounts   payable   and   payroll   modules),    customer   services,
infrastructure,   embedded  computer  chips,  networks  and   telecommunications
equipment and products.  The Company also relies on the external  Systems of its
suppliers and other organizations with which it does business.

         The Company has  established a Year 2000  Compliance  Committee that is
investigating  the  impact  of the  year  2000 on the  Company's  business.  The
Committee membership includes representatives involved in all major functions of
the Company.  Its charter is to identify all Systems that, if not in compliance,
could adversely  affect the Company's  business.  For critical  Systems that are
found not to be in compliance,  the Committee  will develop a plan,  including a
budget for associated  costs, to ensure  compliance before the year 2000. It has
already  been  determined  that  many  of the  Company's  Systems,  such  as its
manufacturing  Systems, are in compliance.  Other Systems, such as its financial
Systems, currently do not comply but are expected to do so this year pursuant to
vendor maintenance agreements. To date, no material issue has been identified in
any of the other  Systems used or relied upon by the Company.  However,  despite
the  Company's  efforts  thus far to address the Year 2000  impact,  the Company
cannot  guarantee  that all internal or external  Systems will be compliant,  or
that  its  business  will  not be  materially  adversely  affected  by any  such
non-compliance.


679833.6
                                      -13-

<PAGE>



Environmental Regulation and Proceedings

         The Company's  facilities  are subject to numerous  federal,  state and
local laws and  regulations  designed  to  protect  the  environment  from waste
emissions  and  hazardous  substances.  Ampex  is also  subject  to the  federal
Occupational Safety and Health Act and other laws and regulations  affecting the
safety and health of employees in its facilities. Management believes that Ampex
is  generally  in  compliance  in all  material  respects  with  all  applicable
environmental and occupational safety laws and regulations or has plans to bring
operations  into  compliance.   Management  does  not  anticipate  that  capital
expenditures  for  pollution  control  equipment for fiscal 1998 or 1999 will be
material.

         Owners and occupiers of sites containing hazardous substances,  as well
as generators and  transporters  of hazardous  substances,  are subject to broad
liability under various federal and state  environmental  laws and  regulations,
including  liability for investigative and cleanup costs and damages arising out
of past  disposal  activities.  The  Company  has been  named  as a  potentially
responsible  party by the United  States  Environmental  Protection  Agency with
respect to four  contaminated  sites that have been  designated  as  "Superfund"
sites on the  National  Priorities  List under the  Comprehensive  Environmental
Response,  Compensation  and  Liability  Act of 1980.  The Company is engaged in
seven environmental  investigation,  remediation and/or monitoring activities at
sites  located  off  Company  facilities,   including  the  removal  of  solvent
contamination from subsurface aquifers at a site in Sunnyvale,  California,  and
surface  clean-up  and the closure of a former  site in El Segundo,  California.
Some of these activities involve the participation of state and local government
agencies.  The  other  five  sites  (including  the four  Superfund  sites)  are
associated with the operations of the Media  subsidiaries  formerly owned by the
Company.  Although the Company sold Media in November 1995, the Company may have
continuing liability with respect to environmental  contamination at these sites
if Media fails to  discharge  its  responsibilities  with respect to such sites.
During  1997,  the  Company  spent a total  of  approximately  $0.2  million  in
connection  with   environmental   investigation,   remediation  and  monitoring
activities  and  expects  to spend a  similar  amount  in  fiscal  1998 for such
activities.

         Because  of  the  inherent   uncertainty  as  to  various   aspects  of
environmental  matters,  including the extent of environmental  damage, the most
desirable remediation  techniques and the time period during which cleanup costs
may be incurred,  it is not possible for the Company to estimate with any degree
of certainty the ultimate  costs that it may incur with respect to the currently
pending environmental matters referred to above.  Nevertheless,  at December 31,
1997,  the  Company  had an  accrued  liability  of  $2.1  million  for  pending
environmental  liabilities  associated with the Sunnyvale site and certain other
sites currently owned or leased by the Company.  The Company has not accrued any
liability for  contingent  liabilities it may incur with respect to former Media
sites discussed above. Based on facts currently known to management,  management
believes  it is only  remotely  likely  that the  liability  of the  Company  in
connection with such pending matters,  either  individually or in the aggregate,
will be material to the Company's  financial  condition or results of operations
or material to investors.

         While the Company  believes that it is generally in compliance with all
applicable  environmental  laws and regulations or has plans to bring operations
into compliance,  it is possible that the Company will be named as a potentially
responsible  party in the future with respect to  additional  Superfund or other
sites.  Furthermore,  because  the  Company  conducts  its  business  in foreign
countries as well as in the U.S.,  it is not possible to predict the effect that
future domestic or foreign regulation could have on Ampex's business,  operating
results  or cash  flow.  There can be no  assurance  that the  Company  will not
ultimately incur liability in excess of amounts  currently  reserved for pending
environmental   matters,   or  that  additional   liabilities  with  respect  to
environmental   matters   will  not  be  asserted.   In  addition,   changes  in
environmental regulations could impose the need for additional capital equipment
or other  requirements.  Such  liabilities or regulations  could have a material
adverse effect on the Company in the future.


679833.6
                                      -14-

<PAGE>



Employees

         As of December 31, 1997, Ampex employed 509 people worldwide,  compared
to 527 at December 31, 1996 and 531 at December 31,  1995.  Approximately  8% of
Ampex's current worldwide  workforce is employed in the Company's  international
operations,  compared to 7% at December 31, 1996 and 6% at December 31, 1995. No
employees are covered by any  collective  bargaining  Agreement.  The Company is
dependent  on the  performance  of certain  key  members of  management  and key
technical personnel. The Company has not entered into employment agreements with
any such individuals.  Edward J. Bramson,  who has served as the Company's Chief
Executive  Officer  since 1991,  is also  engaged in the  management  of certain
companies  affiliated with Sherborne  Holdings  Incorporated,  a privately owned
Delaware  holding  company  and a Company  stockholder.  Mr.  Bramson  currently
devotes  most of his  time to the  management  of the  Company.  The loss of the
services of Mr. Bramson or other key individuals  could have a material  adverse
effect on the Company.

Pension Plan Matters

         In 1994, the Company,  the Pension Benefit  Guaranty  Corporation  (the
"PBGC") and certain  affiliates (the  "Affiliates") who were members of a "group
under common  control" for purposes of the Employee  Retirement  Income Security
Act ("ERISA") entered into certain agreements in connection with the liquidation
of the Company's former parent, NH Holding Incorporated ("NHI"), relating to the
pension  plans of the Company and of its former  Media  subsidiaries,  which are
currently   underfunded.   See  Note  16  of  Notes  to  Consolidated  Financial
Statements.  Pursuant to these agreements,  the Affiliates agreed that if during
the terms of the agreements  Ampex fails to make a required  contribution to the
pension plans, the Affiliates will make or advance funds to permit Ampex to make
such contribution, and Ampex agreed to repay such amounts in accordance with the
terms of the  agreements.  Ampex has agreed to grant the  Affiliates  a security
interest in certain  assets as collateral  for any advances which the Affiliates
may be required to make in the future pursuant to the agreements. The agreements
contain  certain  restrictive  covenants  which,  among other  things,  restrict
Ampex's ability to declare  dividends,  sell all or substantially all its assets
or  commence  liquidation,  or engage in  specified  transactions  with  certain
related  parties,  breach of which could result in acceleration of the Company's
potential termination liabilities.  In 1994, the Company discontinued accrual of
benefits  under  the  pension  plans,  but has  continued  to fund  its  plan in
accordance with ERISA (and remains contingently liable to fund the Media plan if
Media fails to do so).  No claims have been  asserted  or, to the  knowledge  of
management, are threatened under these agreements.

ITEM 2.           PROPERTIES

         As of December 31, 1997,  the Company's  principal  properties  were as
follows:

<TABLE>
<CAPTION>
                                                                                Approximate
                                                                                Square Footage
Location                                      Activities Conducted              of Facility
--------                                      --------------------              -----------
<S>                                           <C>                                 <C>
Redwood City, California                      Executive offices, RD&E
                                              and manufacturing (1)               195,840
Colorado Springs, Colorado                    Manufacturing                       229,961
Chineham, Basingstoke, England                Sales and service (2)                 7,184
Tokyo, Japan                                  Sales and service (3)                 3,886
Sulzbach, Germany                             Sales and service (3)                13,530
</TABLE>
-------------------

(1)      The  majority of this  property  (186,440  square feet) is leased under
         leases  entered into in  connection  with the January 1996 sale of this
         property.  The remainder  (9,400 square feet) is leased on a short-term
         basis.

(2)      These facilities are leased under a ten-year lease, which is terminable
         at the option of the Company or the landlord in 2002.

679833.6
                                      -15-

<PAGE>



(3)      These  facilities  are leased under leases that expire at various times
         through 2000.

         In addition to the properties and leased facilities listed above, Ampex
leases  office  space and  warehouse  facilities  from  time to time at  various
domestic and foreign locations.  In addition,  the Company has outstanding lease
obligations  with respect to various  facilities whose functions were terminated
in connection  with the  Company's  prior period  restructuring  of its business
operations.  The  Company is  subleasing  portions of these  facilities  pending
termination of the underlying leases.

         On  January  25,  1996,  the  Company  completed  the  sale of its real
property in Redwood City, California.  All of the functions that were located at
the Redwood City site have been  relocated to portions of the facility that have
been leased back from the purchaser under two separate leases.  One lease covers
approximately  132,150 square feet in buildings  leased for a term of from 10 to
13 years.  The second lease covers a 54,290 square foot building  occupied on an
interim basis under similar terms, but the lease contains a provision allowing a
move to a new 60,000 square foot building upon its completion, which is expected
to occur in 1998. When the move to this new building is complete,  the lease for
the 54,290 square foot building will terminate and the Company will enter into a
new  ten-year  lease for the  60,000  square  foot  property.  The lease for the
132,150 square foot property will then become  co-terminous  with the new lease,
so that both such leases are expected to terminate in 2008; however, the Company
has a  one-time  option  to  terminate  the lease for the  132,150  square  foot
facility in 2001.

         The Company believes that its current  facilities,  including machinery
and equipment, are generally in good condition, well-maintained and suitable for
their intended  uses,  and that its facilities  have, and will continue to have,
adequate capacity to accommodate the Company's present needs and business growth
for its present products in the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

         The  Company  is a  party  to  routine  litigation  incidental  to  its
business.  In the opinion of  management,  no such current or pending  lawsuits,
either  individually or in the aggregate,  are likely to have a material adverse
effect on the  Company's  financial  condition,  results of  operations  or cash
flows.

         On September 22, 1995, the Company filed a lawsuit  against  Mitsubishi
Electric Corporation and Mitsubishi Electric America Inc.  ("Mitsubishi") in the
U.S. District Court for the District of Delaware,  alleging patent  infringement
and breach of license  agreement in connection with the manufacture of VHS video
recorders and television  receivers,  and seeking damages and injunctive relief.
In response to the Company's lawsuit,  on December 12, 1995,  Mitsubishi filed a
lawsuit  against Ampex in the U.S.  District  Court for the Central  District of
California,  alleging patent  infringement of two Mitsubishi  patents by certain
Ampex video and data  recorder  products,  and seeking  unspecified  damages and
injunctive relief. In March 1997, the California court determined that Ampex has
no liability to Mitsubishi patents. Mitsubishi's request for a new trial and for
judgment as a matter of law was denied.  In July 1997,  the court  affirmed  its
decisions  in favor of Ampex and  Mitsubishi  filed a notice of appeal  with the
Court of Appeals for the Federal Circuit.

         In April 1997,  a jury in the U.S.  District  Court for the District of
Delaware returned a verdict in favor of Ampex in its patent infringement lawsuit
against  Mitsubishi and awarded damages to Ampex of  approximately  $8.1 million
for  infringing  a patent used in  connection  with the  manufacture  of certain
television receivers.  The defendants asserted various defenses and in June 1997
the judge granted a post-trial motion by Mitsubishi to set aside the verdict and
award of damages on the theory of prosecution history estoppel.  In August 1997,
Ampex's  motion for retrial was denied and the Company  filed a notice of appeal
with the Court of Appeals for the Federal  Circuit.  The Company does not expect
the  Courts  of  Appeals  to issue  their  decision  in this case or in the case
described in the foregoing  paragraph before the latter part of 1998. In view of
the substantial  uncertainty  remaining in this litigation,  no income from this
verdict  has  been  recorded  in  the  Company's   financial   statements.   See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Results of Operations for the Three Years Ended December 31, 1997 --
Selling and Administrative Expenses" and "--Royalty Income,"

679833.6
                                      -16-

<PAGE>



above.  The  June  1997  decision  relates  only to  infringement  of one of the
Company's patents which is used in picture-in-picture television sets. Ampex has
asserted  additional  claims against  Mitsubishi with respect to infringement of
Ampex patents in connection with various VCR products.  No date has been set for
trial of these claims.

         See also  "Environmental  Regulation  and  Proceedings"  and Note 12 of
Notes to  Consolidated  Financial  Statements  for additional  information  with
respect to pending legal proceedings.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.

ITEM 4A.          EXECUTIVE OFFICERS OF THE REGISTRANT

         The executive  officers of the Company and their ages as of February 1,
1998 are as follows:

<TABLE>
<CAPTION>
         Name                             Age         Position
         ----                             ---         --------
<S>                                       <C>         <C>                                    
         Edward J. Bramson                46          Chairman and Chief Executive Officer
         Craig L. McKibben                47          Vice President, Chief Financial Officer and Treasurer
         Robert L. Atchison               60          Vice President
         Richard J. Jacquet               58          Vice President
         Joel D. Talcott                  56          Vice President and Secretary
</TABLE>

         Each of the executive  officers of the Company  serves in such capacity
at the discretion of the Board.

         Edward J. Bramson is Chairman of the Board, Chief Executive Officer and
a director of the  Company.  He has been an officer and  director of the Company
since  1987,  and since  January  1991 has been Chief  Executive  Officer of the
Company.  He is also Chairman and Chief Executive Officer of Sherborne  Holdings
Incorporated,   Sherborne  &  Company  Incorporated  and  Sherborne  Investments
Corporation,  is a limited  partner of Newhill  Partners,  L.P. and the managing
member of SH Securities Co., L.L.C. These entities, which are private investment
holding companies, may be deemed to be affiliates of the Company. Mr. Bramson is
also a director of Hillside Capital  Incorporated,  a private industrial holding
company with which he has been associated  since 1976. From 1987 until 1994, Mr.
Bramson was a director and executive officer of NH Holding Incorporated ("NHI"),
the Company's former parent.  See "Relationship  with NH Holding  Incorporated,"
below.

         Craig L. McKibben is Vice President, Treasurer, Chief Financial Officer
and a director of the Company.  Mr.  McKibben has been an officer and a director
of the Company  since 1989.  From 1983 to 1989,  he was a partner at the firm of
Coopers & Lybrand, independent public accountants. He is also Vice President and
a  director  of  Sherborne  Holdings  Incorporated  and of  Sherborne  & Company
Incorporated. Since 1989, Mr. McKibben has been a director and executive officer
of NHI. See "Relationship with NH Holding Incorporated," below.

         Robert L.  Atchison is Vice  President  of the Company.  Since  January
1994, he has been responsible for all operating  activities of the Company,  and
in 1996 assumed  responsibility for certain of the Company's sales and marketing
activities.  From April 1991 to January 1994, he was responsible for engineering
and  operations  for the Company.  Mr.  Atchison  also serves as President and a
director of Ampex Data Systems  Corporation,  a wholly owned  subsidiary  of the
Company.  He has served as an  executive  officer  of the  Company  and  various
subsidiaries since 1987.

         Richard J.  Jacquet is Vice  President of the  Company.  Since  January
1994, he has been responsible for all  administrative  functions of the Company.
From 1989 to January 1994, he was  responsible for personnel and human resources
matters for the Company.  Mr. Jacquet has been associated with the Company since
1988, serving as Director of Human Resources prior to his appointment in 1989 as
Vice President.

679833.6
                                      -17-

<PAGE>



         Joel D.  Talcott  is  Vice  President  and  Secretary  of the  Company,
positions he has held since 1987. He has served as General Counsel since January
1996, a position he also held from 1987 to January 1994. He is also  responsible
for the Company's patent licensing  activities  (having served as Patent Counsel
from 1981 to 1987), and has supervisory  responsibility  for investor  relations
and corporate  communications  functions. Mr. Talcott is an officer and director
of Ampex Data Systems Corporation, a wholly-owned subsidiary of the Company.

Relationship with NH Holding Incorporated

         From May 1987 until  December  1994, the Company was a subsidiary of NH
Holding Incorporated  ("NHI").  Messrs.  Bramson,  McKibben and Slusser were the
directors of NHI, and Messrs.  Bramson and McKibben were  executive  officers of
NHI.  On  December  28,  1994  (the  "Consummation  Date"),  the  United  States
Bankruptcy Court for the District of Delaware confirmed a plan of reorganization
for NHI (the "NHI Plan"),  pursuant to which all of the assets of NHI (including
16,000,000  shares of Class A Stock of the Company)  were  distributed  to NHI's
former creditors.  Since the Consummation Date, Mr. McKibben has been serving as
the sole  officer  and  director of NHI and the  disbursing  agent under the NHI
Plan.

                                     PART II

ITEM 5.           MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS

         (a) The  following  table  sets  forth the high and low  prices for the
Company's  Class A Common  Stock for each quarter  during  fiscal 1996 and 1997.
Since January 16, 1996, the Class A Common Stock has been traded on the American
Stock Exchange under the symbol "AXC."

         The trading  price of the  Company's  Class A Common Stock has been and
can be expected to be subject to significant volatility, reflecting a variety of
factors,   including  quarterly  variations  in  operating  results,   analysts'
estimates, announcements of new product introductions and other announcements by
the Company or its competitors  and general  economic or market  conditions.  In
addition,  the stock market in general and  technology  companies in  particular
have experienced a high degree of price volatility,  which has had a substantial
effect on the market prices of many technology  companies for reasons that often
are unrelated or disproportionate to operating performance.

         Fiscal Year                      High                       Low
         -----------                      ----                       ---

         1997
         First Quarter                   $10.50                     $5.63
         Second Quarter                    7.38                      5.44
         Third Quarter                     6.25                      3.88
         Fourth Quarter                    4.56                      2.13

         1996
         First Quarter                     7.06                      3.63
         Second Quarter                   15.75                      5.38
         Third Quarter                     9.50                      5.13
         Fourth Quarter                   11.38                      6.25

         As of  January  30,  1998,  there  were 833  holders  of  record of the
Company's Class A Common Stock.

         The Company has not  declared  any  dividends on its Common Stock since
its  incorporation  in 1992 and has no present  intention of paying dividends on
its Common Stock.  The Company is also  restricted by the terms of the Indenture
for the  Senior  Notes  and  certain  other  agreements  and of its  outstanding
Noncumulative Preferred Stock as to the declaration of dividends.  Under current
circumstances, the Company may not pay any cash dividends on

679833.6
                                      -18-

<PAGE>



its Common  Stock.  See  "Management's  Discussion  and  Analysis  of  Financial
Condition  and Results of Operations  -- Liquidity  and Capital  Resources"  and
Notes 10 and 13 of Notes to Consolidated Financial Statements.

         (b) The following sets forth  information as to securities  sold by the
Company  during  the past  three  years  which  were not  registered  under  the
Securities Act of 1933, as amended (the "Securities Act"):

         On January 28,  1998,  the  Company  issued and sold $30 million of its
Senior  Notes and  Warrants to purchase  1,020,000  shares of its Class A Common
Stock to a group of "qualified  institutional buyers" as that term is defined in
Rule 144A under the Securities Act. The transaction was exempt from registration
under the  Securities  Act by reason of Section  4(2)  thereof and  Regulation D
thereunder as a transaction by an issuer not involving any public offering. Each
Warrant is  exercisable  to purchase one share of the  Company's  Class A Common
Stock at $2.25 per share, and expires on March 15, 2003.

         On October  29,  1997,  November 7, 1997 and  February  18,  1998,  the
Company  issued a total of 400,000  shares of its Class A Common Stock to Edward
J. Bramson,  chief executive officer of the Company. The shares were sold for an
aggregate  purchase price of  $1,268,752,  of which 20% was paid in cash and the
balance by promissory notes of Mr. Bramson. All such shares have been pledged to
the Company as security for the promissory  notes. Mr. Bramson  represented that
the  acquisition  of such shares was made for  investment and not with a view to
resale or other distribution absent registration under the Securities Act or the
availability  of  an  exemption  therefrom.  The  transaction  was  exempt  from
registration  under the  Securities  Act by reason of Section  4(2) thereof as a
transaction not involving any public offering.

         On October 23, 1996, the Company issued 400,000 shares of Class A Stock
to SH Securities Co. LLC ("SH LLC"), a limited liability  company  controlled by
Mr. Bramson, chief executive officer of the Company. The shares were sold for an
aggregate  price  of  $2,750,000,  of  which  $550,000  was paid in cash and the
balance by a promissory note issued by SH LLC. All such shares have been pledged
to the  Company  as  security  for the  promissory  note  issued by SH LLC.  The
purchaser  represented  that the  acquisition  of such  securities  was made for
investment  and  not  with  a  view  to  resale  or  other  distribution  absent
registration  under  the  Securities  Act or the  availability  of an  exemption
therefrom. The transaction was exempt from registration under the Securities Act
by reason of Section 4(2) thereof as a  transaction  by an issuer not  involving
any public offering.

         Information as to additional  sales of  unregistered  securities by the
Company  during the past three years is contained in Item 15 of Amendment  No. 2
to Registration  Statement on Form S-1 of the Company (File No. 33- 91312) filed
with the  Securities  and  Exchange  Commission  and is  incorporated  herein by
reference.  All  such  sales  were  made  to  affiliates  of the  Company  or to
institutional  investors who represented that the acquisition of such securities
was made for  investment  and not with a view to  resale  or other  distribution
absent registration under the Securities Act or the availability of an exemption
therefrom.  The transactions were exempt from registration  under the Securities
Act by reason of Section 4(2) thereof as transactions by an issuer not involving
any public offering.

ITEM 6.           SELECTED FINANCIAL DATA

         The financial data required by Item 6 is included immediately following
Item 14 hereof.

ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                 RESULTS OF OPERATIONS


         The following  discussion  and analysis of the financial  condition and
results of  operations  of the  Company and its  subsidiaries  should be read in
conjunction  with the Consolidated  Financial  Statements and the Notes thereto,
included elsewhere in this Report.


679833.6
                                      -19-

<PAGE>



Product Groups

         The Company's  principal  product groups are: its mass data storage and
instrumentation products and its professional video and other products. The mass
data storage and  instrumentation  products group  includes:  (i) 19- millimeter
scanning  recorders and library  systems (DST and DIS products) and related tape
and  after-market  equipment;  and (ii)  data  acquisition  and  instrumentation
products  (primarily  DCRsi  instrumentation  recorders)  and  related  tape and
after-market  equipment.  The Company's  professional  video and other  products
group includes  primarily its DCT video recorders and image  processing  systems
and related tape products and television  aftermarket  equipment.  These product
groups are described  below.  No other class of similar  products  accounted for
more than 10% of net sales during the comparison  periods  discussed  below.  In
recent years,  the Company has focused its efforts on  high-performance  digital
data storage and delivery systems for the emerging  commercial mass data storage
market,  and has  discontinued  many older products and businesses.  The Company
operates in one industry segment for financial reporting  purposes:  the design,
development,  production and distribution of high-speed,  high-capacity magnetic
recording products and systems.

         The following  table shows sales of the  Company's  products by product
group for the past three years.


                                  Net Sales
                                (in millions)
                                      1997          1996              1995
Mass data
storage/instrumentation              $63.7          $71.6             $65.6
Professional video and
other products                        16.6           24.9              30.1
                                      ----           ----              ----
Total net sales                       80.3           96.5              95.7

Results of Operations for the Three Years Ended December 31, 1997

         Net Sales.  Net sales  decreased by 16.8% to $80.3 million in 1997 from
$96.5  million  in 1996,  compared  to $95.7  million in 1995.  The  anticipated
continuing  decline in sales of professional  video and other products accounted
for the  majority  of the decline in net sales  during  1997 and 1996.  In 1997,
sales of the Company's  19-millimeter product line declined from 1996 levels and
sales of  instrumentation  recorders  increased  modestly during the period. The
Company doubled the capacity of its 19-millimeter product line early in 1997 and
passed along this  improvement  to the customer at no increase in selling price.
Although  the   Company  shipped   more  megabytes  of 19-millimeter  tape-based
storage,  its revenues for this product category declined during the 1997 fiscal
year,  due also to declining  sales to customers in the oil and gas industry and
the government.  In 1996, the increase in sales of 19-millimeter tape-based mass
data  storage  and  instrumentation  products  offset  the  decline  in sales of
professional video recording products and other products.  The Company's backlog
of firm orders  increased to $6.9 million at December 31, 1997 from $3.4 million
at December 31, 1996. The Company typically operates with low levels of backlog,
requiring  it to obtain the vast  majority of each  period's  orders in the same
period that they must be shipped to the customer.  Historically,  a small number
of large  orders has  significantly  impacted  sales levels and often orders are
received  late in the quarter  making it  difficult  to predict  sales levels in
future periods. See "Business -- Fluctuations in Operating Results; Seasonality;
Backlog."  Management currently believes that net sales of its existing products
will  decline  materially  in the  first  quarter  of 1998 and in  fiscal  1998,
relative to comparable 1997 periods.

         Mass Data Storage Products and Instrumentation Recorders. Sales of mass
data storage  products and  instrumentation  recorders and related  after-market
products  decreased  by 11.0%  from  1996 to  1997,  after  experiencing  a 9.1%
increase  in 1996 from 1995  levels.  Early in 1997,  the  Company  doubled  the
density of its 19-


679833.6
                                      -20-

<PAGE>


millimeter  tape-based  storage products without increasing the selling price in
order to  retain  the  price/performance  advantage  over  competing  tape-based
storage products and hard disk drives. Accordingly,  while the Company shipped a
larger  amount of capacity  measured  in  megabytes,  revenues  in this  product
category declined in 1997 from 1996 levels. Revenues from these products in 1997
were also  affected by declining  sales to customers in the oil and gas industry
and the government.  In addition to retaining its  price/performance  advantage,
broader commercial  acceptance of its 19-millimeter  storage systems will depend
significantly  on the integration and vendor support of third party  application
software, which are often beyond the Company's control.

         The cost-efficiency of the Company's  19-millimeter storage systems has
historically been dependent on data intensive applications,  such as those which
incorporate  video,  graphics  and  other  images,  requiring  storage  capacity
materially greater than those required by traditional alphanumeric applications.
The  Company has  concentrated  its sales and  marketing  efforts  primarily  in
certain specialized  vertical markets,  such as digital special effects creation
and 3-D  seismic  data  gathering  and  analysis,  that can  utilize  the unique
performance  capabilities  of the Company's  19-millimeter  scanning  recorders.
Industry sources predict that by 2002,  image-based storage content will account
for 40% of all  storage,  up from 15%  today.  In order  to  capitalize  on this
increasing demand for storage, the Company may be required to increase its sales
and marketing  efforts to penetrate the commercial data processing  market,  and
there is  typically  a lag  from  the time  such  efforts  are  initiated  until
additional revenues are generated.

         A  significant   portion  of  instrumentation   product  sales  reflect
purchases  by  the  federal  government.  Direct  and  indirect  sales  to  U.S.
government  agencies amounted to $22.3 million,  $17.4 million and $14.0 million
in 1997, 1996 and 1995, respectively, representing 27.7%, 18.0% and 14.7% of net
sales in those  years.  While sales to  government  agencies  have  historically
consisted  primarily of data  acquisition  and  instrumentation  recorders,  the
Company has  recently  experienced  an increase in sales of  19-millimeter-based
data storage products to these customers. Sales to government agencies fluctuate
as a result of  changes  in  government  spending  programs  (including  defense
programs),  and  may  be  adversely  impacted  by  Congressional  appropriations
discussions.  The Company is unable to forecast the extent to which sales may be
adversely affected in future periods by these factors.

         Professional Video Recording and Other Products.  Sales of professional
video  recording  products  and all  other  products  (consisting  primarily  of
television  after-market  products)  continued to decline as anticipated  and as
previously  disclosed.  In 1997 and 1996,  sales of the  Company's  DCT products
accounted for all of the Company's  professional  television  product sales. The
Company's DCT digital products were designed for existing broadcast transmission
standards,  which are  expected  to become  obsolete  upon the  adoption  of new
digital  transmission  standards  that  were  recently  announced.  The  Company
anticipates that its  professional  video product sales will continue to decline
pending  the  establishment  of new  standards  and  until new  products  can be
introduced that are designed for them. The Company also anticipates a continuing
reduction  in the  sale of  television  after-market  products  for  these  same
reasons.  Such sales  declines  could have a  materially  adverse  effect on the
Company. There can be no assurance as to when broadcasters will re-equip for the
new  transmission  standards  or whether the Company will be  successful  in any
future  efforts it may  undertake to design and sell new products  based on such
standards.  The Company is exploring ways to increase its market presence in the
professional  video  industry,  capitalizing on its reputation in television and
video recording,  which may include  acquisitions of products and/or  businesses
that serve these  markets.  There can be no  assurance  that the Company will be
successful in integrating these products and businesses into its operations.

         Gross  Profit.  Gross profit as a percentage  of net sales was 48.8% in
1997,  45.7% in 1996 and 45.9% in 1995.  The improved  gross margin  percentages
reflect the effects of the Company's  cost  containment  activities,  which have
reduced fixed  manufacturing  and  administrative  costs, as well as an improved
sales mix of newer,  high-margin  products. If sales of the Company's relatively
high-margin  instrumentation  recorders  are  adversely  affected by pressure on
government agencies to further reduce spending,  gross margins in future periods
could be  adversely  affected.  Also,  the Company  may elect to use  aggressive
pricing as a marketing  strategy to enter new markets for its storage  products.
While these  efforts  would be designed  ultimately  to  increase  revenues  and
profitability, they might reduce the gross margin percentage of net sales in the
current period.


679833.6
                                      -21-

<PAGE>



         Selling  and  Administrative   Expenses.   Selling  and  administrative
expenses  as a  percentage  of net sales were  30.4% in 1997,  28.1% in 1996 and
23.7% in 1995.  Spending  levels  included $4.2 million in 1997, $4.9 million in
1996 and $0.1 million in 1995 relating to patent infringement  litigation with a
foreign consumer products  manufacturer.  While the Company anticipates that the
appeal of this  litigation  will be heard late in 1998, it  anticipates  that it
will not incur  material  costs related to this matter in 1998.  Excluding  such
costs,  selling and  administrative  costs declined in 1997,  reflecting savings
realized in facility operating costs from levels incurred in 1996 as a result of
relocating  the  Company's  headquarters  into smaller  facilities.  The Company
anticipates that it will need to increase its sales and marketing  efforts to be
successful in  penetrating  the commercial  data markets with its  19-millimeter
storage  products.  Also, if it pursues  additional  opportunities  in video and
image processing, the Company forecasts that selling and administrative expenses
may increase as a percentage of sales in future  periods until such new business
efforts begin to generate additional revenues.

         Research,  Development and Engineering Expenses. Research,  development
and  engineering  expenses  represented  19.3%,  16.5% and 16.3% of net sales in
1997,  1996 and 1995,  respectively.  The Company does not capitalize a material
amount of RD&E  expenditures.  The  majority  of RD&E  expenses in each of these
years was used to enhance the  price/performance  levels of the  Company's  mass
data storage  products,  as well as to integrate the Company's  storage  systems
with various computer  manufacturers'  servers,  workstations and other computer
systems.  Since the second half of 1994,  the Company has been  investing in the
development  of  keepered  media  technology  and has spent $3.6  million,  $1.9
million   and  $1.0   million  in  1997,   1996  and  1995,   respectively,   on
commercializing  this technology for use in hard disk drives. The keepered media
development  program was  substantially  completed  during 1997. The Company has
transferred  this  program to a long-term  research and  development  project to
assess whether the technology might be commercially  employed with advanced head
technologies.  Continuing  expenses for keepered media research are estimated to
be less than $0.5  million  annually.  The Company is  committed to investing in
research,  development and engineering  programs at levels that can be supported
by current levels of sales.

         Royalty Income. Royalty income was $12.6 million in 1997, $10.5 million
in 1996 and $15.0 million in 1995.  The Company's  royalty  income  derives from
patent  licenses,  and the  Company  receives  most of its  royalty  income from
licenses with companies that  manufacture  consumer video products (such as VCRs
and camcorders) and, in certain cases, professional video tape recorders. During
this period a growing portion of royalty income related to 8-mm video  recorders
and  camcorders.  In 1996,  the Company  negotiated its first license for use of
certain of its patents in the manufacture of 6-mm digital video  recorders.  The
Company  intends to pursue  additional  digital video  recorder  licensees.  The
Company is also  assessing  whether  its  patented  technology  is being used by
manufacturers  of video games, DVD recorders and digital  television  receivers.
There can be no assurance that the Company's technology is being utilized by the
manufacturers of these products or, if used, whether the Company will be able to
negotiate  license  agreements  with  the  manufacturers.   Royalty  income  has
historically  fluctuated  widely due to a number of factors that the Company can
not  predict or  control,  such as the extent of use of the  Company's  patented
technology by third  parties,  the  materiality of any  non-recurring  royalties
received  as  the  result  of  negotiated   settlements  for  products  sold  by
manufacturers prior to entering into licensing  agreements with the Company, the
extent which the Company must pursue litigation in order to enforce its patents,
and the ultimate success of its licensing and litigation  activities.  The costs
of patent litigation can be material,  and the institution of patent enforcement
litigation may also increase the risk of counterclaims  alleging infringement by
the Company of patents held by third  parties or seeking to  invalidate  patents
held by the Company. See "Legal Proceedings," above.

         Restructuring  Charges  (Credits).  In  connection  with the  Company's
restructuring that was substantially  completed in 1993, the Company had accrued
for the  estimated  future costs of vacated  leased  property and the closure of
certain foreign  subsidiaries.  In the past three years, the Company has entered
into transactions that reduced its anticipated obligations under several vacated
leases.  In  addition,  certain  expenses  related  to the  closure  of  foreign
subsidiaries  were less than  originally  anticipated.  In 1997,  the  amount of
restructuring  credit recognized in income is net of a reserve that was recorded
to  write-off  certain  fixed  assets and to provide  for  certain  other  costs
totaling  $0.9 million in  connection  with the  transfer of the keepered  media
program to a long-term  research  and  development  project.  As of December 31,
1997, the Company had a remaining balance of $3.3 million of accrued

679833.6
                                      -22-

<PAGE>



restructuring costs. The Company will continue to evaluate the amount of accrued
restructuring  costs on a quarterly  basis,  and the Company may make additional
adjustments in future periods if it determines that its actual  obligations will
differ significantly from the amounts accrued.

         Operating  Income.  Operating  income was $13.5  million  (16.8% of net
sales) in 1997,  $12.0  million  (12.5% of net sales) in 1996 and $23.1  million
(24.2% of net sales) in 1995.  Operating  income was positively  impacted by the
receipt of  negotiated  license  settlements  in addition  to regular  recurring
license  payments,  improved  gross  margins  due to an  improved  sales  mix of
products,   continuing   focus  on  cost  controls  on  recurring   selling  and
administrative   expenses  and  restructuring   credits.   Patent   infringement
litigation  costs,  RD&E spending on keepered media and  continuing  declines in
sales,  particularly sales of professional  video and other products,  adversely
impacted operating income as discussed above.

         Interest  Expense.  Interest  expense was not  material  in 1997,  $0.8
million in 1996 and $3.8  million  in 1995.  In the first  quarter of 1996,  the
holders  of the  then  outstanding  8%  zero  coupon  convertible  notes  with a
principal  amount  at  maturity  of  $27.4  million  converted  the  notes  into
approximately  8.5 million  shares of Common Stock.  Also, in January 1996,  the
mortgage on the real  property in Redwood City,  California  was repaid from the
cash proceeds of the sale of such property.  In January 1998, the Company issued
$30.0   million  of  12%  Senior   Notes  due  2003  and  warrants  to  purchase
approximately  1.02  million  shares of Common  Stock to  certain  institutional
investors. Accordingly, leverage and interest expense will increase in 1998 from
current levels.

         Amortization of Debt Financing  Costs.  These amounts reflect  periodic
amortization of financing costs over the remaining terms of the debt. Due to the
conversion  of the zero coupon notes and the  repayment of the mortgage in 1996,
the remaining deferred  financing costs were written off during 1996.  Financing
costs  associated  with the  January  1998  issuance  of the 12%  Senior  Notes,
estimated to total $1.5 million, will be charged to expense over 5 years.

         Interest  Income.  Interest  income is earned on cash balances,  and in
1997 and 1996  interest  income was imputed on the notes  received in connection
with the sale of the Company's  Redwood City,  California  property in 1996. The
notes were fully paid in 1997. Pending application of the proceeds of the Senior
Notes, they have been invested in short-term government securities.

         Other (Income)  Expense,  Net. Other  (income)   expense,  net consists
primarily of foreign  currency  transaction  gains and losses resulting from the
Company's  foreign  operations.  In 1996,  such amounts  included a gain of $0.9
million  on the  sale of the  smaller  of its two  manufacturing  facilities  in
Colorado  Springs,  Colorado,  offset  by  moving-related  expenditures  of $0.9
million at the Redwood City, California facility.

         Provision for Income Taxes. The Company was not required to include any
material  provision for U.S.  Federal income tax in any of the last three fiscal
years due to the  utilization  of net operating  loss  carryforwards  and timing
differences.   At  December  31,  1997,  the  Company  had  net  operating  loss
carryforwards  for income tax purposes of $100.0 million,  expiring in the years
2005 through 2009. As a result of financing  transactions that were completed in
1994 and 1995,  the  Company  is limited  in the  amount of net  operating  loss
carryforwards  that can offset  consolidated  Federal  taxable income in a given
year. See Note 19 of Notes to  Consolidated  Financial  Statements.  The Company
derives  pretax  foreign  income from its  international  operations,  which are
conducted  principally by its foreign subsidiaries.  In addition,  the Company's
royalty income is subject,  in certain cases, to foreign tax  withholding.  Such
income  is taxed by  foreign  taxing  authorities,  and the  Company's  domestic
interest and  amortization  expenses and operating  loss  carryforwards  are not
deductible in computing such foreign  taxes.  The provisions for income taxes in
1997,  1996 and 1995 consist  primarily of foreign income taxes and  withholding
taxes on royalty income.

         Gain of Business Held for  Disposition.  In November  1995, the Company
completed the  disposition of the Media  subsidiaries,  which had been accounted
for as a business held for  disposition  since the quarter ended June 1993.  The
sale did not result in the receipt of any cash proceeds by the Company,  and the
non-recurring gain of

679833.6
                                      -23-

<PAGE>



$43.9 million in 1995  represented  the elimination of net liabilities of Media,
less  taxes  and  other  costs.  See Note 2 of Notes to  Consolidated  Financial
Statements.

         Net Income.  The Company  reported net income of $14.8 million in 1997,
$12.7 million in 1996 and $63.3 million in 1995.  Net income  benefited from the
non-recurring  gain of $43.9  million  on the sale of Media in 1995 and from the
factors discussed above in "Operating Income."

Liquidity and Capital Resources.

         Cash Flow.  At December 31, 1997,  the Company had cash and  short-term
investments  of $41.8  million,  an increase  from $30.7 million at December 31,
1996. In addition,  in January 1998,  the Company issued $30.0 million of Senior
Notes. The net proceeds of the Senior Notes are available for general  corporate
purposes,  including  acquisitions of and  investments in new business.  Pending
application for such purposes, the net proceeds are being invested in short-term
government  securities.  The increase in cash and short-term investments in 1997
and in 1996 was due in part to receipt of the  proceeds of  repayment of certain
notes  received  from  the  sale of  portions  of the  Company's  Redwood  City,
California facilities in 1996. The Company's operating activities generated cash
of $4.6 million in 1997 and used cash of $6.1 million in 1996.  The  improvement
in operating cash flow resulted from the factors  discussed  above in "Operating
Income." The Company's decision to increase  inventories to support sales of its
19-millimeter  DST and DIS  products is the primary  reason for the  increase of
$2.3 million in  inventories  at December 31, 1997 from  December 31, 1996.  The
increased  investment in inventories,  particularly  with respect to its library
systems,  which have a limited  sales  history,  may  expose  the  Company to an
increased risk of inventory write-offs.

         The  Company  has  available  a working  capital  and  letter of credit
facility that allows it to borrow up to $7.0 million through May 2000,  based on
eligible accounts receivable.  At December 31, 1997, the Company had no material
borrowings  outstanding  and had letters of credit  issued  against the facility
totaling $2.7 million.

         Financing Transactions. In January 1996, the Company repaid the balance
of the $7.4 million mortgage loan on the Redwood City,  California property from
a portion of the cash  proceeds of the sale.  Also,  during 1996,  the Company's
convertible  notes with an  aggregate  face amount at maturity of $27.4  million
were  converted  into  approximately  8.5 million  shares of Common  Stock,  and
warrants to purchase  approximately  1.7 million  shares were  exercised.  As of
December 31, 1997, the Company became obligated to redeem the 69,970 outstanding
shares of its 8%  Noncumulative  Preferred Stock, to the extent of funds legally
available   therefor   (generally  the  excess  of  the  value  of  assets  over
liabilities),  at a  redemption  price of $1,000 per share.  As of December  31,
1997,  the  Company  did not have any funds  legally  available  to  redeem  the
Noncumulative Preferred Stock, and the Company  cannot predict when, and to what
extent, it will generate any legally available funds to redeem the Noncumulative
Preferred  Stock.  The Company will remain  obligated to redeem such shares from
time to time in  future  fiscal  periods  to the  extent  funds  become  legally
available for  redemption,  and will  generally be precluded  from declaring any
cash  dividends  on, or  repurchasing  shares of, its  Common  Stock,  until the
Noncumulative  Preferred  Stock has been  redeemed  in full.  Redemption  of the
Noncumulative  Preferred  Stock for cash in future periods could have a negative
impact on the Company's liquidity.  Under certain  circumstances the Company may
redeem the Noncumulative Preferred Stock by issuing Common Stock. See Note 13 of
Notes to Consolidated Financial Statements.

         In the second quarter of 1996,  the Company filed a shelf  registration
statement with the Securities and Exchange  Commission covering 1,150,000 shares
of Common  Stock  which may be  offered  from time to time by the  Company,  the
proceeds  of which  would be used for general  corporate  purposes.  The sale of
Common Stock covered by the shelf registration  statement could adversely affect
the market price for the Common Stock,  and would dilute  current  stockholders'
interest by approximately  2% if all such shares were to be issued.  The Company
does not  currently  anticipate  proceeding  with  this  financing  based on the
current market price of the Company's Common Stock.


679833.6
                                      -24-

<PAGE>



         In January 1998,  the Company issued $30.0 million of its Senior Notes,
together  with Warrants to purchase  1.02 million  outstanding  shares of Common
Stock.  The Warrants are  exercisable at $2.25 per share at any time on or prior
to March 15, 2003. The Warrants, if exercised,  would represent approximately 2%
of the Company's  outstanding  shares of Common Stock on a diluted  basis.  As a
result of the issuance of the Senior Notes, the Company's total indebtedness and
future debt service obligations have increased  significantly from prior levels.
The Company is required to use its best efforts to register the Senior Notes and
Warrants with the Securities  and Exchange  Commission in order to permit public
resales of these  securities in accordance  with the  Securities Act of 1933, as
amended.  The net  proceeds of the  offering  have been  invested in  short-term
government  securities,  the yield on which  investments is substantially  lower
than the interest  charges on the Senior Notes.  The Company has wide discretion
as to how the proceeds may be invested,  including for the  acquisitions  of and
investments in new businesses.  Any such investments or  acquisitions,  if made,
might not pay a current  return,  which  could  require the Company to fund debt
service  obligations on the Senior Notes out of its liquidity and cash flow from
its existing operations.  The Indenture under which the Senior Notes were issued
contains customary  affirmative and negative  restrictive  covenants that limit,
among other things,  the  incurrence of additional  senior debt,  the payment of
dividends,  the sale of assets and other  actions  by the  Company  and  certain
restricted subsidiaries. Under such Indenture the Company may, in general, issue
additional senior debt, without meeting certain fixed charges coverage tests, up
to $15.0 million.  The Company has no present plans to issue any such additional
debt, but may do so in the future if investment or acquisition opportunities are
subsequently identified that require additional capital funds.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements required by Item 8 and the financial statement
schedules  required by Item 14(d) are  included  following  Item 14 hereof.  The
supplementary data called for by Item 8 is not applicable to the Company.

ITEM 9.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                 FINANCIAL DISCLOSURE

         Not applicable.

                                    PART III

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         The  information  required  by this  item  is  incorporated  herein  by
reference  to the  Company's  Proxy  Statement  for its 1998  Annual  Meeting of
Stockholders (the "Proxy Statement").

         Information  regarding  executive officers is included in Part I hereof
as Item 4A and is incorporated by reference into this Item 10.

ITEM 11.          EXECUTIVE COMPENSATION

         The  information  required  by this  item  is  incorporated  herein  by
reference to the Company's Proxy Statement.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

         The  information  required  by this  item  is  incorporated  herein  by
reference to the Company's Proxy Statement.



679833.6
                                      -25-

<PAGE>



ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item is incorporated by reference to
the Company's Proxy Statement.

                                     PART IV

ITEM 14.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a)      Documents Filed with this Report

                  1.       Financial Statements (see Item 8 above)
                           Ampex Corporation Consolidated Financial Statements
                           as of December 31, 1997, 1996 and 1995 and for each
                           of the three years in the period ended December 31,
                           1997

                  2.       Financial Statement Schedules (see Item 8 above)
                           Schedule II Valuation and Qualifying Accounts

                  3.       Exhibits

Exhibit
Number            Description

                  Purchase and Sale Agreement dated as of November 29, 1995,
     2.1          between the Company, as seller, and The Martin Group of
                  Companies, as buyer, relating to the Company's real property
                  in Redwood City, California, and First Amendment to Purchase
                  and Sale Agreement dated January 19, 1996 (filed as Exhibit
                  2.01 to the Company's Form 8-K dated January 25, 1996 (the
                  "January 1996 8-K") and incorporated herein by reference).

     2.2          Secured Purchase Money Promissory Note in the face amount of
                  $6.5 million, and Secured Purchase Money Promissory Note
                  (Phase 2 Land) in the face amount of $11.0 million, each dated
                  January 24, 1996, made by Martin/Campus Associates, L.P., and
                  payable to the Company (filed as Exhibit 2.02 to the January
                  1996 8-K and incorporated herein by reference).

     2.3          Stock Purchase Agreement dated as of November 10, 1995, among
                  the Company, Quantegy Acquisition Corp., Ampex Media Holdings
                  Incorporated, Ampex Media Corporation and Ampex Recording
                  Media Corporation (filed as Exhibit 10.1 to the Company's Form
                  8-K dated November 13, 1995 and incorporated herein by
                  reference).

     3.1          Restated Certificate of Incorporation of the Company dated
                  June 1, 1993 (filed as Exhibit 4.01 to the Company's Form 10-Q
                  for the quarter ended March 31, 1993 and incorporated herein
                  by reference); Certificate of Amendment of Restated
                  Certificate of Incorporation of the Company filed with the
                  Secretary of State of Delaware on April 22, 1994 (filed as
                  Exhibit 3.2 to the Company's Form 8-K filed on May 2, 1994
                  (the "May 1994 8-K") and incorporated herein by reference);
                  and Certificate of Amendment of Restated Certificate of
                  Incorporation of the Company filed with the Secretary of State
                  of Delaware on April 20, 1995 (filed as Exhibit 4.1 to the
                  Company's Form 10-Q for the quarter ended March 31, 1995 (the
                  "First Quarter 1995 10-Q") and incorporated herein by
                  reference).

     3.2          Certificate of Ownership and Merger of Ampex Video Systems
                  Corporation and Ampex Recording Systems Corporation into Ampex
                  Systems Corporation (filed as Exhibit 3.2 to the Company's
                  Form 10-Q for the quarter ended March 31, 1994 (the "First
                  Quarter 1994 10-Q") and incorporated herein by reference).

679833.6
                                      -26-

<PAGE>



     3.3          Certificate of Ownership and Merger of Ampex Systems
                  Corporation into the Company (filed as Exhibit 3.1 to the May
                  1994 8-K and incorporated herein by reference).

     3.4          Certificate of Designations, Preferences and Rights of the
                  Company's 8% Noncumulative Preferred Stock (filed as Exhibit
                  3.1 to the Company's Form 8-K filed on February 24, 1995 (the
                  "February 1995 8-K") and incorporated herein by reference).

     3.5          By-Laws of the Company, as amended through April 20, 1995
                  (filed as Exhibit 4.2 to the First Quarter 1995 10-Q and
                  incorporated herein by reference).

     4.1          Form of Class A Common Stock Certificate (filed as Exhibit 4.4
                  to the Company's Post-Effective Amendment No. 1 on Form S-3 to
                  Form S-1 (File No. 33-91312) (the "1996 Form S-3") and
                  incorporated herein by reference).

     4.2          Form of Class C Common Stock Certificate (filed as Exhibit 4.5
                  to the Form S-3 and incorporated herein by reference).

     4.3          Form of 8% Noncumulative Preferred Stock Certificate (filed as
                  Exhibit 4.6 to the Form S-3 and incorporated herein by
                  reference).

     4.4          Exchange Agreement for 8% Noncumulative Preferred Stock and
                  Common Stock, dated as of February 14, 1995, among the Company
                  and the Initial Holders named therein (filed as Exhibit 4.1 to
                  the February 1995 8-K and incorporated herein by reference).

     4.5          Exchange Agreement for 8% Step-Up Rate Cumulative Convertible
                  Preferred Stock, Warrants and Common Stock, dated as of April
                  22, 1994, among the Company and the Initial Holders named
                  therein (filed as Exhibit 4.1 to the May 1994 8-K and
                  incorporated herein by reference).

     4.6          Exchange Agreement for Zero-Coupon Convertible Notes, Warrants
                  and Common Stock, dated as of April 22, 1994, among the
                  Company and the Initial Holders named therein (filed as
                  Exhibit 4.2 to the May 1994 8-K and incorporated herein by
                  reference).

     4.11         Registration Rights Agreement for Notes dated as of April 22,
                  1994 among the Company and the Initial Holders named therein
                  (filed as Exhibit 4.6 to the May 1994 8-K and incorporated
                  herein by reference).

     4.12         Registration Rights Agreement for Warrants and Shares dated as
                  of April 22, 1994 among the Company and the Initial Holders
                  named therein (filed as Exhibit 4.7 to the May 1994 8-K and
                  incorporated herein by reference).

     4.13         Registration Rights Agreement for 8% Noncumulative Preferred
                  Stock dated as of February 14, 1995 among the Company and the
                  Initial Holders named therein (filed as Exhibit 4.2 to the
                  February 1995 8-K and incorporated herein by reference).

     4.14         Registration Rights Agreement for Shares dated as of February
                  14, 1995 among the Company and the Initial Holders named
                  therein (filed as Exhibit 4.3 to the February 1995 8-K and
                  incorporated herein by reference).

     4.15         Stock Purchase Agreement, dated February 10, 1995, between the
                  Company and Edward J. Bramson, and related promissory note
                  issued to the Company by Sherborne Investments Corporation
                  (each filed as an Exhibit to Amendment No. 6 to Schedule 13D,
                  filed on February

679833.6
                                      -27-

<PAGE>



                  23, 1995 by Edward J. Bramson and the other filing parties
                  named therein, and incorporated herein by reference).

     4.16         Stock Subscription and Debt Exchange Agreement dated as of
                  January 25, 1993 between the Company and Sherborne Group
                  Incorporated, and Registration Rights Agreement dated as of
                  January 25, 1993 between the Company and Sherborne Group
                  Incorporated, executed in counterpart by Sherborne Holdings
                  Incorporated (each filed as an Exhibit to Amendment No. 1 to
                  Schedule 13D, filed on February 3, 1993 by Sherborne Group
                  Incorporated, Sherborne Holdings Incorporated and the other
                  filing parties named therein, and incorporated herein by
                  reference).

     4.17         Letter Agreement between the Company and Sherborne Group
                  Incorporated, dated December 22, 1993, providing for the
                  issuance of shares of Class A Common Stock to Sherborne Group
                  Incorporated in exchange for cancellation of debt (filed as
                  Exhibit 4.24 to the Company's Form 10-K for fiscal 1993 (the
                  "1993 10-K") and incorporated herein by reference).

     4.18         Promissory Note in the amount of $1,754,727, issued by the
                  Company to NH Holding Incorporated, dated December 22, 1993
                  (filed as Exhibit 4.25 to the 1993 10-K and incorporated
                  herein by reference).

     4.19         Warrant Agreement, dated as of January 28, 1998, between
                  the Registrant and American Stock Transfer &Trust Company, as
                  warrant agent, including form of Warrant Certificate (filed as
                  Exhibit 4.2 to the Registrant's Form 8-K filed on February 2,
                  1998 (the "February 1998 8-K") and incorporated herein by
                  reference).

     4.20         Indenture, dated as of January 28, 1998, between the Company
                  and IBJ Schroder Bank & Trust Company, as trustee, relating to
                  the Registrant's 12% Senior Notes due 2003, including forms of
                  12% Senior Notes (filed as Exhibit 4.1 to the February 1998
                  8-K and incorporated herein by reference).

     4.21         Purchase Agreement, dated January 26, 1998, between the
                  Registrant and First Albany Corporation, relating to the
                  Registrant's 12% Senior Notes due 2003 (filed as Exhibit 1.1
                  to the February 1998 8-K and incorporated herein by
                  reference).

     4.22         Exchange and Registration Rights Agreement, dated as of
                  January 28, 1998, between the Registrant and First Albany
                  Corporation, relating to the Registrant's 12% Senior Notes due
                  2003 (filed as Exhibit 4.3 to the February 1998 8-K and
                  incorporated herein by reference.

     4.23         Warrants and Warrants Share Registration Rights Agreement,
                  dated as of January 28, 1998, between the Registrant and First
                  Albany Corporation (filed as Exhibit 4.4 to the February 1998
                  8-K and incorporated herein by reference).

     10.1         Tax Indemnification Agreement dated as of July 24, 1992 among
                  Sherborne Group Incorporated, NH Holding Incorporated, the
                  Company and certain affiliates and former affiliates of the
                  Company (filed as Exhibit 10.11 to the Company's Form 10-Q for
                  the quarter ended September 30, 1992 (the "Third Quarter 1992
                  10-Q") and incorporated herein by reference).

     10.2         Ampex Corporation 1992 Stock Incentive Plan and related
                  documents, as amended through August 22, 1996 (filed as
                  Exhibit 4.03 to the Company's Post-Effective Amendment No. 1
                  to Registration Statement on Form S-8 (File No. 333-05623) and
                  incorporated herein by reference).

679833.6
                                      -28-

<PAGE>



     10.3*        Ampex Systems Corporation Savings Plan (1997 Restatement).

     10.4*        Ampex Systems Corporation Employees' Retirement Plan, as
                  amended and restated as of January 1, 1997.

     10.5         Ampex Corporation Supplemental Retirement Income Plan, as
                  amended through September 3, 1985 (filed as Exhibit 10.27 to
                  Amendment No. 3 to the Company's Registration Statement on
                  Form S-1 (filed No. 33-47660) and incorporated herein by
                  reference).

     10.6         Ampex Corporation Retiree & Disabled Retiree Medical Care
                  Plan, as amended and restated effective April 22, 1994 (filed
                  as Exhibit 10.8 to the 1994 10-K and incorporated herein by
                  reference).

     10.7         Form of Indemnification Agreement entered into between the
                  Company and directors Bramson, McKibben, Slusser and Stoltzfus
                  (filed as Exhibit 10.16 to the Company's Form 10-Q for the
                  quarter ended June 30, 1993 (the "Second Quarter 1993 10-Q")
                  and incorporated herein by reference).

     10.8         Office Sharing Agreement and Assignment and Assumption of
                  Lease, each dated as of July 24, 1992 and each between the
                  Company and Sherborne Group Incorporated (filed as Exhibit
                  10.20 to the Third Quarter 1992 10-Q and incorporated herein
                  by reference), and related Sublease dated October 4, 1993 and
                  Letter Agreement dated October 28, 1993 (filed as Exhibit
                  10.20 to the 1993 10-K and incorporated herein by reference).

     10.9         Loan and Security Agreement by and between Ampex Finance
                  Corporation and Congress Financial Corporation dated May 5,
                  1994 (filed as Exhibit 10.2 to the First Quarter 1994 10-Q and
                  incorporated herein by reference) and Amendment Agreement
                  dated as of July 31, 1995, second Amendment Agreement, dated
                  March 29, 1996 (filed as Exhibit 10.2 to Second Quarter 1996
                  10-Q and incorporated herein by reference) and third Amendment
                  Agreement, dated December 26, 1996 (filed as Exhibit 10.13 to
                  the 1996 Form 10-K and incorporated herein by reference).

     10.10        Form of Employment Security Letter entered into between the
                  Company and Messrs. Atchison, McKibben, Jacquet and Talcott
                  (executive officers of the Company), dated May 19, 1993, with
                  addendum dated June 10, 1993 (filed as Exhibit 10.32 to the
                  Second Quarter 1993 10-Q and incorporated herein by
                  reference).

     10.11        Stock Purchase Agreement, dated October 22, 1996, between the
                  Company and Edward J. Bramson (filed as Exhibit 10.15 to the
                  Company's Form 10-K for fiscal 1996 (the "1996 10- K") and
                  incorporated herein by reference).

     10.12        Lease dated January 19, 1996 by and between Martin/Campus
                  Associates, L.P. as landlord and the Company as tenant, with
                  respect to approximately 132,150 square feet of premises
                  located on Douglas Avenue and on Broadway in Redwood City,
                  California (filed as Exhibit 2.03 to the January 1996 8-K and
                  incorporated herein by reference) as amended by amendment
                  dated December 20, 1996 (filed as Exhibit 10.17 to the 1996
                  10-K and incorporated herein by reference).

     10.13        Lease dated January 19, 1996 by and between Martin/Campus
                  Associates, L.P. as landlord and the Company as tenant, with
                  respect to approximately 54,290 square feet of premises
                  located on Bay Road in Redwood City, California (filed as
                  Exhibit 2.04 to the January 1996 8-K and incorporated herein
                  by reference).

679833.6
                                      -29-

<PAGE>




     10.14        Lease dated January 19, 1996 by and between Martin/Campus
                  Associates, L.P. as landlord and the Company as tenant, with
                  respect to approximately 359,218 square feet of premises
                  located on Bay Road and Broadway in Redwood City, California
                  (filed as Exhibit 2.05 to the January 1996 8-K and
                  incorporated herein by reference).

     10.15        Lease dated January 19, 1996 by and between Martin/Campus
                  Associates, L.P. as landlord and the Company as tenant, with
                  respect to approximately 60,000 square feet of premises to be
                  constructed on Broadway in Redwood City, California (filed as
                  Exhibit 2.06 to the January 1996 8-K and incorporated herein
                  by reference).

     10.16        TrademarkLicense Agreement dated May 31, 1990, by and between
                  Ampex Corporation (a predecessor of the Company) as licensor,
                  and certain of the Media Subsidiaries as licensee, relating to
                  the Ampex trademark; related Trademark License Agreement dated
                  July 24, 1992, by and between Ampex Systems Corporation (a
                  former subsidiary that was merged into the Company) certain of
                  the Media Subsidiaries; Amendment No. 1 to Trademark License
                  Agreement dated March 23, 1993; Amended and Restated Trademark
                  License Agreement dated June 22, 1993; and First Amendment to
                  Amended and Restated Trademark License Agreement dated
                  November 10, 1995 (filed as Exhibit 10.2 to 1995 10-K and
                  incorporated herein by reference).

      10.17       Joint Settlement Agreement by and among Pension Benefit
                  Guaranty Corporation, the Ampex Group (a group of companies
                  that includes the Company), the Limited Hillside Group and the
                  Sherborne Group, dated November 22, 1994 (filed as Exhibit
                  10.2 to 1995 10-K and incorporated herein by reference).

      10.18       Hillside-Ampex/Sherborne Agreement by and among the Ampex
                  Group (a group of companies that includes the Company), the
                  Limited Hillside Group and the Sherborne Group, dated December
                  1, 1994 (effective November 22, 1994) (filed as Exhibit 10.2
                  to 1995 10-K and incorporated herein by reference).

      10.19       Real Estate Purchase Agreement dated as of April 16, 1996,
                  between U.S. Filter/Ionpure Inc. and the Company, together
                  with amendments thereto dated as of April 29, 1996 and May 3,
                  1996, relating to the sale of the Company's Colorado Springs,
                  Colorado facility (filed as Exhibit 10.1 to Second Quarter
                  1996 10-Q and incorporated herein by reference).

      10.20*      10.2Stock Purchase Agreement, dated as of October 29, 1997,
                  between the Registrant and Edward J. Bramson.

      10.21*      Stock Purchase Agreement, dated as of November 7, 1997,
                  between the Registrant and Edward J. Bramson.

      10.22*      Stock Purchase Agreement dated as of February 18, 1998 
                  between the Registrant and Edward J. Bramson.

      21.1*       Subsidiaries of the Company

      23.1*       Consent of Independent Accountants

      25.1*       Power of Attorney (included in the signature page of this
                  Report)

      27.1*       Financial Data Schedule

-------------------
*  Filed herewith

679833.6
                                      -30-

<PAGE>



         (b)      Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the fourth quarter of 1997.

         (c)      Exhibits. See Item 14(a)(3) above.

         (d)      Financial Statement Schedules. See Items 8 and 14(a)(2) above.



679833.6
                                      -31-

<PAGE>



                             SELECTED FINANCIAL DATA

         The following table summarizes certain selected financial data, which
have been derived from and should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," both
of which are included elsewhere herein. There have been no cash dividends
declared for the periods presented. In November 1995, the Company completed the
divestiture of its Media subsidiaries, which had been accounted for as a
business held for disposition since the second quarter of 1993. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Note 2 of Notes to Consolidated Financial Statements and Note 1 to
the table below.

Statement of Operations Data (1):


<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                       --------------------------------------------------------------------------------
                                            1997            1996            1995            1994             1993
                                            ----            ----            ----            ----             ----
                                                            (in thousands, except per share data)
<S>                                           <C>              <C>             <C>            <C>              <C>     
Net sales                                     $80,311          $96,485         $95,662        $127,212         $169,711
Gross profit                                   39,171           44,078          43,886          49,795           48,523
Selling and administrative                     24,452           27,084          22,626          24,279           66,219
Restructuring charges (credits)               (1,659)            (453)         (2,480)              --          230,523
Income (loss) from continuing
operations                                     14,803           12,741          19,407          15,542        (295,261)
Net income (loss)                              14,803           12,741          63,293          15,542        (296,404)
Diluted income (loss) per  share
from continuing operations                       0.32             0.28            0.47            0.36          (16.67)
Diluted income (loss) per share                  0.32             0.28            1.40            0.36          (16.74)



Balance Sheet Data (1)
                                                                       At December 31,
                                      ----------------------------------------------------------------------------------
                                                  1997            1996             1995             1994            1993
                                                  ----            ----             ----             ----            ----
                                                                        (in thousands)
Working capital                                $44,607         $39,277        $  10,742       $  (3,960)      $ (41,429)
Total assets                                    81,671          84,492           88,651           87,459         129,446
Long-term debt                                       2             914           31,585           30,805          90,641
Redeemable preferred stock                      69,970          69,970           69,970           83,977              --
Total stockholders' equity
(deficit)                                     (90,015)        (86,360)        (127,357)        (195,240)       (210,481)
--------------------------
</TABLE>

(1)   The statement of operations data for all periods presented have been
      reclassified to reflect the results of operations of Media as discontinued
      operations, with the sale of discontinued operations reflected in the
      statement of operations for 1995. The balance sheet data for 1993 and 1994
      reflect the assets and liabilities of Media as a single line item, "net
      liabilities of business held for disposition." This line item is
      inapplicable for subsequent periods as the sale of Media was completed in
      November 1995.



679833.6
                                      -32-

<PAGE>


                                AMPEX CORPORATION



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS








Report of Independent Accountants............................................F-2




Consolidated Balance Sheets

      As of December 31, 1997 and 1996.......................................F-3




Consolidated Statements of Operations

      For Each of the Three Years in the Period Ended December 31, 1997......F-4




Consolidated Statements of Cash Flows

      For Each of the Three Years in the Period Ended December 31, 1997......F-5




Consolidated Statements of Stockholders' Deficit

      For Each of the Three Years in the Period Ended December 31, 1997......F-6




Notes to Consolidated Financial Statements...................................F-7




                                       F-1

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS





Board of Directors and Stockholders
Ampex Corporation



         We have audited the accompanying  consolidated  balance sheets of Ampex
Corporation  as of  December  31, 1997 and 1996,  and the  related  consolidated
statements of operations,  cash flows and stockholders'  deficit for each of the
three years in the period ended December 31, 1997.  These  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ampex Corporation as of December 31, 1997 and 1996, and the consolidated results
of its  operations  and its cash flows for each of the three years in the period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.




COOPERS & LYBRAND L.L.P.

San Francisco, California
February 20, 1998

679833.6
                                       F-2

<PAGE>


                                AMPEX CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

<TABLE>
<CAPTION>

                                                                                           December 31,        December 31,
                                                                                               1997                1996
                                                                                          ---------------     ---------------
<S>                                                                                       <C>                 <C>           
ASSETS
Current assets:
    Cash and cash equivalents                                                             $       24,076      $       13,410
    Short-term investments                                                                        17,685              17,241
    Notes receivable                                                                                   -               7,926
    Accounts receivable (net of allowances of $1,484 and $2,241)                                  13,246              16,721
    Inventories                                                                                   16,380              14,095
    Other current assets                                                                           1,347               2,709
                                                                                          ---------------     ---------------
       Total current assets                                                                       72,734              72,102

Property, plant and equipment                                                                      8,892              10,059
Other assets                                                                                          45               2,331
                                                                                          ---------------     ---------------
       Total assets                                                                       $       81,671      $       84,492
                                                                                          ===============     ===============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
    Notes payable                                                                         $          933      $        1,075
    Accounts payable                                                                               5,173               7,148
    Income taxes payable                                                                             373                 571
    Accrued restructuring costs                                                                    1,706               2,002
    Other accrued liabilities                                                                     19,942              22,029
                                                                                          ---------------     ---------------
       Total current liabilities                                                                  28,127              32,825

Long-term debt                                                                                         2                 914
Other liabilities                                                                                 70,708              60,233
Deferred income taxes                                                                              1,267               1,314
Accrued restructuring costs                                                                        1,612               5,596
                                                                                          ---------------     ---------------
       Total liabilities                                                                         101,716             100,882
                                                                                          ---------------     ---------------

Commitments and contingencies (Note 12)

Redeemable nonconvertible preferred stock, $1,000 liquidation value:
    Authorized: 69,970 shares 1997 and 1996                                                                                   
    Issued and outstanding - 69,970 shares 1997 and 1996                                          69,970              69,970

Stockholders' deficit:
    Preferred stock, $1.00 par value:
       Authorized: 930,030 shares 1997 and 1996
       Issued and outstanding - none 1997 and 1996                                                     -                   -
    Common stock, $.01 par value:
       Class A:
          Authorized:  125,000,000 shares 1997 and 1996
          Issued and outstanding - 45,936,707 shares 1997; 45,434,417 shares 1996                    459                 454
       Class C:
          Authorized: 50,000,000 shares 1997 and 1996
          Issued and outstanding - none 1997 and 1996                                                  -                   -
    Other additional capital                                                                     383,513             382,042
    Note receivable from stockholder                                                              (4,818)             (3,979)
    Accumulated deficit                                                                         (440,068)           (454,871)
    Cumulative translation adjustments                                                               507                 526
    Minimum pension liability adjustment                                                         (29,608)            (10,532)
                                                                                          ---------------     ---------------
       Total stockholders' deficit                                                               (90,015)            (86,360) 
                                                                                          ---------------     ---------------
       Total liabilities and stockholders' deficit                                        $       81,671      $       84,492
                                                                                          ===============     ===============


The accompanying notes are an integral part of these condolidated financial statements.

                                      F-3

</TABLE>

<PAGE>


                                AMPEX CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                       (in thousands, except share data)

<TABLE>
<CAPTION>


                                                                                     Year Ended December 31,
                                                               ---------------------------------------------------------
                                                               1997                 1996               1995
                                                               ------------------   -----------------  -----------------

<S>                                                             <C>                 <C>                 <C>            
Net sales                                                       $         80,311    $         96,485    $        95,662
Cost of sales                                                             41,140              52,407             51,776
                                                               ------------------   -----------------  -----------------
   Gross profit                                                           39,171              44,078             43,886

Selling and administrative                                                24,452              27,084             22,626
Research, development and engineering                                     15,464              15,930             15,622
Royalty income                                                           (12,550)            (10,497)           (15,006)
Restructuring charges (credits)                                           (1,659)               (453)            (2,480)
                                                               ------------------   -----------------  -----------------
   Operating income                                                       13,464              12,014             23,124
Interest expense                                                              86                 756              3,775
Amortization of debt financing costs                                           -                  85                126
Interest income                                                           (2,991)             (3,257)            (1,145)
Other (income) expense, net                                                   59                  35                 40
                                                               ------------------   -----------------  -----------------
   Income from continuing operations
    before income taxes                                                   16,310              14,395             20,328
Provision for income taxes                                                 1,507               1,654                921
                                                               ------------------   -----------------  -----------------
   Income from continuing operations                                      14,803              12,741             19,407
Gain of business held for disposition (net of taxes of
   $1,137 in 1995)                                                             -                   -             43,886
                                                               ------------------   -----------------  -----------------
   Net income                                                   $         14,803    $         12,741    $        63,293
                                                               ==================   =================  =================

Basic income per share :
   Income per share from continuing operations                 $            0.32     $          0.29$              0.58
   Income per share from discontinued operations                            0.00                0.00               1.38
                                                               ------------------   -----------------  -----------------
   Income per share                                            $            0.32     $          0.29    $           1.96
                                                               ==================   =================  =================
Weighted average number of common shares outstanding                  45,616,344          43,307,645         31,964,682
                                                               ==================   =================  =================

Diluted income per share :
   Income per share from continuing operations                 $            0.32     $          0.28$              0.47
   Income per share from discontinued operations                            0.00                0.00               0.93
                                                               ------------------   -----------------  -----------------
   Income per share                                            $            0.32     $          0.28$              1.40
                                                               ==================   =================  =================
Weighted average  number of common shares outstanding                 46,461,321          44,723,031         47,145,357
                                                               ==================   =================  =================



The accompanying notes are an integral part of these condolidated financial statements.
</TABLE>


                                       F-4

<PAGE>


                                AMPEX CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>





                                                                                              Year Ended December 31,
                                                                          --------------------------------------------------------
                                                                                    1997               1996               1995
                                                                          -----------------  ------------------  -----------------
<S>                                                                         <C>                <C>                  <C>          
  Cash flows from operating activities:
    Net income                                                              $       14,803     $        12,741      $      63,293
    Adjustments to reconcile net income to net cash
       provided by (used in) operating activities:
         Depreciation, amortization and accretion                                    2,244               2,803              6,714
         Net gain on sale of assets                                                      -                 932                  -
         Write-off of long-lived assets                                                445                   -                  -
         Net increase in notes receivable                                             (874)             (1,519)                 -
        Deferred income taxes                                                         (47)                (65)                 -
         (Increase) decrease in accounts receivable                                  4,243              (1,848)            (2,848)
         Increase in inventories                                                    (2,285)             (1,583)            (2,666)
         Net (increase) decrease in other assets                                     3,516              (1,922)               105
         Increase (decrease) in accounts payable                                    (2,269)             (2,492)             2,832
         Net decrease in accrued liabilities and
          income taxes payable                                                      (4,170)             (1,898)            (9,515)
         Net decrease in long-term receivables                                         132                  26                393
         Net decrease in accrued restructuring costs                                (4,280)             (3,131)            (7,810)
         Net decrease in other non-current obligations                              (6,883)             (8,129)            (3,669)
         Net decrease in net liabilities associated with
          business held for disposition                                                  -                   -            (43,886)
                                                                          -----------------  ------------------  -----------------
            Net cash provided by (used in) operating activities                      4,575              (6,085)             2,943
                                                                          -----------------  ------------------  -----------------

  Cash flows from investing activities:
    Purchases of short-term investments                                            (78,629)            (72,670)           (39,303)
    Proceeds received on the maturity of short-term investments                     77,957              64,376             27,392
    Proceeds from the sale of short-term investments                                   228               3,938              6,876
    Additions to property, plant and equipment                                      (1,560)             (2,834)              (658)
    Net proceeds and additions to notes receivable                                   8,800              (6,407)                 -
    Proceeds from the sale of property, plant and equipment                              -              27,485                120
    Deferred gain on sale of assets                                                   (814)              5,930                  -
    Decrease in other assets                                                             -                   2                  -
                                                                          -----------------  ------------------  -----------------
            Net cash provided by (used in) investing activities                      5,982              19,820             (5,573)
                                                                          -----------------  ------------------  -----------------

  Cash flows from financing activities:
    Borrowings under working capital facilities                                     52,053              48,130             50,527
    Repayments under working capital facilities                                    (52,908)            (49,410)           (49,905)
    Repayment of secured note payable                                                    -              (7,333)            (3,000)
    Repayment of notes payable-affiliates                                               (2)                (80)              (706)
    Proceeds from issuance of common stock                                             637               1,624                394
    Proceeds from issuance of warrants                                                   -                  17                  -
    Debt financing costs                                                                 -                   -               (137)
                                                                          -----------------  ------------------  -----------------
            Net cash used in financing activities                                     (220)             (7,052)            (2,827)
                                                                          -----------------  ------------------  -----------------
  Effect of exchange rates on cash                                                     329                 (38)               164
                                                                          -----------------  ------------------  -----------------
            Net increase (decrease) in cash and cash equivalents                    10,666               6,645             (5,293)
  Cash and cash equivalents, beginning of period                                    13,410               6,765             12,058
                                                                          -----------------  ------------------  -----------------
  Cash and cash equivalents, end of period                                  $       24,076     $        13,410      $       6,765
                                                                          =================  ==================  =================



The accompanying notes are an integral part of these condolidated financial statements.
</TABLE>


                                      F-5

<PAGE>



                                AMPEX CORPORATION
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                 For Each of the Three Years in the Period Ended
                                December 31, 1997
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                                                 Note   
                                                 Common Stock                                Other             R'cvble  
                                      Class A                     Class C                  Additional            from   
                                Shares      Amount         Shares         Amount            Capital            Stkhlder 
                              ----------- ------------  -------------  -------------- ---------------------  ------------

<S>                               <C>     <C>             <C>            <C>            <C>                      
Balances, January 1, 1995         20,551  $       206              6            -       $     338,993                -  

  Net income                           -            -              -            -                   -                -  

  Translation adjustments              -            -              -            -                   -                -  

  Minimum pension liability
          adjustment                   -            -              -            -                   -                -  

  Proceeds from exercise                      
          of warrants              1,345           13              -            -                   -                -  

  Proceeds from issuance
          of shares                1,500           15              -            -               2,400   $       (2,053) 

  Preferred stock accretion            -            -              -            -                (783)               -  

  Stock options exercised              8            -              -            -                  19                -  

  Preferred stock exchange         1,225           12          9,782   $       98              14,680                -  

  Expenses on exchange                 -            -              -            -                (137)               -  

  Conversion of shares             7,681           77         (7,681)         (77)                  -                -  
                              -----------    ---------  -------------     --------    ----------------    ------------- 

Balances, December 31, 1995       32,310  $       323          2,107    $      21       $     355,172   $       (2,053) 

  Net income                           -            -              -            -                   -                -  

  Translation adjustments              -            -              -            -                   -                -  

  Minimum pension liability
          adjustment                   -            -              -            -                   -                -  

  Proceeds from exercise                      
          of warrants              1,699           17              -            -                   -                -  

  Proceeds from issuance
          of shares                  400            4              -            -               2,746           (1,926) 

  Stock options exercised            395            4              -            -                 797                -  

  Conversion of notes              8,523           85              -            -              23,327                -  

  Conversion of shares             2,107           21         (2,107)         (21)                  -                -  
                              -----------    ---------  -------------     --------    ----------------    ------------- 

Balances, December 31, 1996       45,434  $       454              -            -       $     382,042   $       (3,979) 

  Net income                           -            -              -            -                   -                -  

  Translation adjustments              -            -              -            -                   -                -  

  Minimum pension liability
          adjustment                   -            -              -            -                   -                -  

  Proceeds from issuance
          of shares                  325            3              -            -               1,045             (839) 

  Stock options exercised            178            2              -            -                 426                -  
                              -----------    ---------  -------------     --------    ----------------    ------------- 

Balances, December 31, 1997       45,937  $       459              -            -       $     383,513   $       (4,818) 
                              ===========    =========  =============     ========    ================    ============= 






                                                                                                              
                                                    Cumulative         Pension          Stockholders'
                                 Accumulated       Translation        Liability             Equity
                                   Deficit          Adjustment        Adjustment          (Deficit)
                                 ------------------- ---------------  -----------------  -------------------

Balances, January 1, 1995    $    (530,905) $          592   $         (4,126)  $         (195,240)

  Net income                        63,293               -                  -               63,293

  Translation adjustments                -            (147)                 -                 (147)

  Minimum pension liability
          adjustment                     -               -             (9,527)              (9,527)

  Proceeds from exercise     
          of warrants                    -               -                  -                   13

  Proceeds from issuance
          of shares                      -               -                  -                  362

  Preferred stock accretion              -               -                  -                 (783)

  Stock options exercised                -               -                  -                   19

  Preferred stock exchange               -               -                  -               14,790

  Expenses on exchange                   -               -                  -                 (137)

  Conversion of shares                   -               -                  -                    -
                               ------------    ------------    ---------------    -----------------

Balances, December 31, 1995  $    (467,612) $          445   $        (13,653)  $         (127,357)

  Net income                        12,741               -                  -               12,741

  Translation adjustments                -              81                  -                   81

  Minimum pension liability
          adjustment                     -               -              3,121                3,121

  Proceeds from exercise     
          of warrants                    -               -                  -                   17

  Proceeds from issuance
          of shares                      -               -                  -                  824

  Stock options exercised                -               -                  -                  801

  Conversion of notes                    -               -                  -               23,412

  Conversion of shares                   -               -                  -                    -
                               ------------    ------------    ---------------    -----------------

Balances, December 31, 1996  $    (454,871) $          526   $        (10,532)  $          (86,360)

  Net income                        14,803               -                  -               14,803

  Translation adjustments                -             (19)                 -                  (19)

  Minimum pension liability
          adjustment                     -               -            (19,076)             (19,076)

  Proceeds from issuance
          of shares                      -               -                  -                  209

  Stock options exercised                -               -                  -                  428
                               ------------    ------------    ---------------    -----------------

Balances, December 31, 1997  $    (440,068) $          507   $        (29,608)  $          (90,015)
                               ============    ============    ===============    =================


The accompanying notes are an integral part of these condolidated financial statements.
</TABLE>

                                      F-6


<PAGE>


                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

Note 1 - Ampex Corporation

         Ampex Corporation  ("Ampex" or the "Company") is engaged in the design,
development,  production and distribution of high-performance  mass data storage
systems, instrumentation recorders and professional video recording products. In
November  1995,  the Company  disposed  of a  subsidiary,  Ampex Media  Holdings
Incorporated ("AMHI" and,  collectively with its subsidiaries,  "Media"),  which
was engaged in the manufacture and sale of magnetic recording media. See Note 2.
All references to "Ampex" or the "Company" include subsidiaries and predecessors
of Ampex Corporation but exclude Media, unless otherwise indicated.

         The Company  operates in one industry  segment for financial  reporting
purposes:  the design,  development,  production and distribution of high-speed,
high-capacity magnetic recording products and systems.

Note 2 - Business Held For Disposition

         In November 1995, the Company completed the disposition of Media, which
had been  accounted  for as a  business  held for  disposition  since the second
quarter of 1993.  The  Company  recognized  a  nonrecurring  gain for  financial
reporting purposes of $43.9 million in 1995.

         The  consolidated  statements of operations have been  reclassified for
all periods  presented and the assets and  liabilities  associated  with Media's
business, which consisted principally of accounts receivable,  inventory,  fixed
assets  and  debt  facilities,  were  reported  as a  single  line  item  in the
consolidated balance sheets. Net sales of Media were $128.7 million from January
1, 1995 to November 13, 1995 (the date of  disposition),  and $144.6  million in
1994.  The  Company  recognized  a gain  for  financial  reporting  purposes  on
disposition of Media because Media's liabilities exceeded its assets.

         Costs and expenses reported by the Company for the distribution of tape
products were included in the results of business  held for  disposition  to the
extent not offset by distribution fees received from Media.

Note 3  - Summary of Significant Accounting Policies

         Basis of Presentation

         The accompanying  consolidated  financial statements are presented on a
historical cost basis.  All  intercompany  accounts and  transactions  have been
eliminated.  Certain  reclassifications  have  been  made  to the  prior  years'
financial  statements  to  conform to the  current  year's  presentation.  These
reclassifications had no effect on the prior years' stockholders' deficit or net
income.

         Use of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the  reported  amounts of assets and  liabilities,  the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of net sales  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

         Cash Equivalents

         Cash equivalents  consist of investments with original maturities of 90
days or less.


691340.1                                   F-7



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 3  - Summary of Significant Accounting Policies (cont'd.)

         Short-term Investments

         Investments  with a maturity  period greater than three months but less
than one year are classified as short-term investments. The Company's short-term
investments  consist  of  highly  liquid  U.S.  Treasury   instruments  and  are
considered   "available-for-sale"   securities   under  Statement  of  Financial
Accounting  Standards No. 115,  Accounting  for Certain  Investments in Debt and
Equity Securities. Unrealized gains and losses, if material, are reported net of
tax as a separate  component of  stockholders'  equity until realized.  Realized
gains and losses,  if any,  are  determined  using the  specific  identification
method.

         Inventories

         Inventories  are stated at the lower of cost (on a first-in,  first-out
basis) or market.

         Property, Plant and Equipment

         Property,  plant and equipment is recorded at cost and is stated net of
accumulated depreciation. Depreciation is provided on a straight-line basis over
estimated useful lives ranging from 6 to 9 years for machinery and equipment and
5 to 50 years for buildings and  improvements.  When assets are disposed of, the
cost and related accumulated  depreciation are removed from the accounts and the
resulting gains or losses are included in the results of operations.

         Carrying Value of Long-Lived Assets

         The Company writes off the carrying  value of long-lived  assets to the
extent estimated future undiscounted  operating cash flows are not sufficient to
recover the carrying value of these assets over their remaining useful life.

         Foreign Currency Translation

         Assets and  liabilities  of  subsidiaries  located  outside  the United
States  have  been  translated  at rates in effect  at year  end.  Revenues  and
expenses are translated at average rates during the year.  Local  currencies are
considered  to be  the  functional  currencies  for  substantially  all  of  the
Company's  foreign  subsidiaries.  Accordingly,  the effects of translating  the
financial  statements of foreign  subsidiaries into U.S. dollars are reported in
the cumulative  translation  adjustment,  a separate  component of stockholders'
deficit.  Foreign currency  transaction gains and losses,  which are included in
other expense, were not material in the periods reported.

         Revenue Recognition

         Revenue is recognized at the time products are shipped to customers and
at the time services are rendered.

         Research, Development and Engineering

         Research and development costs are expensed as incurred and amounted to
$13.1  million,  $14.0  million  and  $12.3  million  in 1997,  1996  and  1995,
respectively.  Other engineering costs,  principally incurred in connection with
product introductions and process  enhancements,  amounted to $2.4 million, $1.9
million and $3.3 million in 1997, 1996 and 1995, respectively.


691340.1                                   F-8

<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 3  - Summary of Significant Accounting Policies (cont'd.)

         Royalties
         Royalty income is recorded when earned and receipt is assured.

         Income Taxes

         The Company follows Statement of Financial Accounting Standards No. 109
("SFAS 109"), Accounting for Income Taxes. See Note 19.

         Foreign  withholding  taxes  have been  provided  on the  undistributed
earnings of foreign subsidiaries, giving recognition to applicable tax rates.

         Concentrations of Credit Risk

         Financial   instruments  that   potentially   subject  the  Company  to
concentrations  of risk consist  principally of temporary cash  investments  and
trade receivables. The Company invests its temporary cash balances in short-term
U.S. Treasury  obligations and with high credit quality  financial  institutions
and, by policy, limits the investment maturity and the amount of credit exposure
to  any  one  financial   institution.   The  Company  performs  ongoing  credit
evaluations on its customers, and collateral is generally not required for trade
receivables.

         Fiscal Year

         The  Company's  fiscal year is the 52 or 53-week  period  ending on the
Saturday  nearest  December 31. Fiscal 1997 was a 53-week year.  Fiscal 1996 and
1995 were 52-week years.

         Income Per Common Share

         The Company  has  adopted the  provisions  of  Statement  of  Financial
Accounting Standards No.128 ("SFAS 128"), Earnings Per Share, effective December
31, 1997.  SFAS 128 requires the  presentation  of basic and diluted  income per
common  share.  Basic income per common share is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding  for the period.  Diluted income per common share is computed giving
effect to all potentially  dilutive common shares that were  outstanding  during
the period.  Dilutive  common shares  consist of the  incremental  common shares
issuable upon the  conversion of  convertible  subordinated  debt (using the "if
converted"  method) and exercise of stock  options and warrants for all periods.
All prior period  income per common share  amounts have been  restated to comply
with SFAS 128.

         Stock Options

         The Company accounts for stock-based  awards to employees in accordance
with APB No. 25 ("APB 25"),  Accounting  for Stock Issued to  Employees  and has
adopted the  disclosure-only  alternative  of Statement of Financial  Accounting
Standards No. 123 ("SFAS 123"),  Accounting  for Stock Based  Compensation.  See
Note 15.

         Fair Value of Financial Instruments

         For certain instruments that are short-term in nature, such as cash and
cash  equivalents,   short-term  investments  and  working  capital  facilities,
carrying value approximates fair value. Management has determined that it is not
practicable to estimate fair value for note payable-other, as no market for such
instruments currently exists. See Note 10.


691340.1                                   F-9

<PAGE>




                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 3  - Summary of Significant Accounting Policies (cont'd.)

         Recent Accounting Pronouncements

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting  Comprehensive
Income.  SFAS  130  establishes  standards  for the  reporting  and  display  of
comprehensive  income  and  its  components  in a full  set of  general  purpose
financial statements. Comprehensive income is defined as the change in equity of
a business  enterprise  during a period from  transactions  and other events and
circumstances  from nonowner sources.  The impact of adopting SFAS 130, which is
effective for the Company in 1998, has not yet been determined.

         In June 1997, the Financial Accounting Standards Board issued Statement
of Accounting  Standards No. 131 ("SFAS 131"),  Disclosure  about Segments of an
Enterprise and Related Information. SFAS 131 requires publicly-held companies to
report financial and other information about  revenue-producing  segments of the
entity for which such  information  is  available  and is  utilized by the chief
operating  decision makers.  Specific  information to be reported for individual
segments  includes  profit or loss,  certain revenue and expense items and total
assets. A reconciliation of segment financial information to amounts reported in
the  financial  statements  would be provided.  SFAS 131 is  effective  for  the
Company in 1998 and the impact of adoption has not been determined.

Note 4 - Computation of Basic and Diluted Income per Share

         In  accordance  with  the  disclosure   requirements  of  SFAS  128,  a
reconciliation  of the numerator and denominator of basic and diluted income per
common share is provided as follows (in thousands, except per share amounts) :

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                   1997               1996                1995
                                                                   ----               ----                ----

<S>                                                           <C>                 <C>                <C>           
Numerator - Basic
     Income from continuing operations .....................  $      14,803       $      12,741      $       19,407
     Less preferred stock accretion ........................              -                   -                (783)
                                                              -------------       -------------      ---------------
     Adjusted income from continuing operations ............  $      14,803       $      12,741      $       18,624
                                                              =============       =============      ==============

      Net income............................................  $      14,803       $      12,741      $       63,293
     Less preferred stock accretion ........................              -                   -                (783)
                                                              -------------       -------------      ---------------
     Adjusted net income ...................................  $      14,803       $      12,741      $       62,510
                                                              =============       =============      ==============


Denominator - Basic
     Weighted average common stock outstanding .............         45,616              43,308              31,965
                                                               ------------       -------------      --------------

Basic income per share from continuing  operations..........  $        0.32       $       0.29       $        0.58
                                                              =============       ============       =============
Basic income per share......................................  $        0.32       $       0.29       $        1.96
                                                              =============       ============       =============
</TABLE>

691340.1                                   F-10


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

Note 4 - Computation of Basic and Diluted Income per Share (cont'd.)


<TABLE>
<S>                                                           <C>                 <C>                <C>           
Numerator - Diluted
     Income from continuing operations .....................  $      14,803       $      12,741      $       19,407
     Add zero coupon interest ..............................              -                   -               2,550
                                                              -------------       -------------      --------------
     Adjusted income from continuing operations ............  $      14,803       $      12,741      $       21,957
                                                              =============       =============      ==============

      Net income............................................  $      14,803       $      12,741      $       63,293
     Add zero coupon interest...............................              -                   -               2,550
                                                              -------------       -------------      --------------
     Adjusted net income ...................................  $      14,803       $      12,741      $       65,843
                                                              =============       =============      ==============


Denominator -  Diluted
     Weighted average common stock outstanding .............         45,616              43,308              31,965
     Effect of dilutive securities:
         Stock options......................................            845               1,231                 509
         Warrants...........................................              -                 184               2,546
         Conversion of zero coupon notes....................              -                   -               8,522
         Conversion of redeemable preferred stock...........              -                   -               3,603
                                                               ------------       -------------      --------------
                                                                     46,461              44,723              47,145
                                                               ------------       -------------      --------------

Diluted income per share from continuing  operations........  $        0.32       $       0.28       $        0.47
                                                              =============       ============       =============
Diluted income per share....................................  $        0.32       $       0.28       $        1.40
                                                              =============       ============       =============
</TABLE>


         Stock  options to  purchase  566,775  shares of common  stock at prices
ranging  from $3.19 to $10.50 per share were  outstanding  at December 31, 1997,
but were not included in the computation of diluted income per share because the
exercise price was greater than the average market value of the common shares.

         In January 1998,  warrants to purchase 1,020,000 shares of common stock
were issued in connection with a private placement.  The warrants, if exercised,
would  represent  approximately  2% of the Company's  common shares on a diluted
basis. See Note 22.

         Stock options to purchase  273,500 shares of common stock at $10.50 per
share were  outstanding  at  December  31,  1996,  but were not  included in the
computation  of diluted  income per share because the exercise price was greater
than the average market value of the common shares.

         Stock  options to purchase  2,500  shares of common  stock at $6.00 per
share were  outstanding  at  December  31,  1995,  but were not  included in the
computation  of diluted  income per share because the exercise price was greater
than the average market value of the common shares.

Note 5 - Supplemental Schedule of Cash Flow Information

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                   1997               1996                1995
                                                                   ----               ----                ----
                                                                                 (in thousands)

<S>                                                           <C>                 <C>                <C>           
     Interest paid..........................................  $          86       $         265      $        1,310
     Income taxes paid .....................................  $       1,752       $       1,706      $        1,436
</TABLE>

691340.1                                   F-11


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

Note 6 - Short-Term Investments

         The carrying and market values of short-term investments are as follows
at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                     Available - For - Sale December 31, 1997
                                                                                                  Scheduled
                                      Carrying            Unrealized              Fair            Maturity
                                       Value         Gains         Losses         Value              Date
                                       -----         -----         ------         -----              ----
                                                                    (in thousands)
<S>                                 <C>             <C>          <C>              <C>              <C> 
U.S. Government and
     Agency Obligations             $ 17,685        $       -    $       -        $ 17,685        Jan.-Mar. 1998


                                                     Available - For - Sale December 31, 1996
                                                                                                    Scheduled
                                      Carrying            Unrealized              Fair            Maturity
                                       Value         Gains         Losses         Value              Date
                                                                    (in thousands)
U.S. Government and
     Agency Obligations             $ 17,241        $       -    $       -        $ 17,241        Jan.-Mar. 1997
</TABLE>



         Short-term  investment  purchases  and  maturities  for the years ended
December 31, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                      1997                1996
                                                                                      ----                ----
                                                                                           (in thousands)
<S>                                                                               <C>                <C>           
     Purchases...............................................................     $      78,629      $       72,670
     Maturities..............................................................            78,185              68,314
                                                                                  -------------      --------------
     Net change..............................................................     $         444      $        4,356
                                                                                  =============      ==============


Note 7 - Inventories

                                                                                            December 31,
                                                                                      1997                1996
                                                                                           (in thousands)

     Raw materials...........................................................     $       6,686      $        6,097
     Work in process.........................................................             5,424               5,160
     Finished goods..........................................................             4,270               2,838
                                                                                  -------------      --------------
          Total..............................................................     $      16,380      $       14,095
                                                                                  =============      ==============
</TABLE>

         Inventories  are stated net of reserves  for  obsolete  and slow moving
items of $15.6  million  and  $20.1  million  at  December  31,  1997 and  1996,
respectively.  Inventory  disposals  which had  previously  been fully  reserved
totaled $4.0 and $4.4 million, during 1997 and 1996, respectively.


691340.1                                   F-12


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 8 - Property, Plant and Equipment

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                      1997                1996
                                                                                      ----                ----
                                                                                           (in thousands)

<S>                                                                               <C>                 <C>       
     Land....................................................................     $         952       $         952
     Buildings and improvements..............................................             8,338              10,943
     Furniture, fixtures and equipment.......................................            29,740              43,381
     Construction in progress................................................               439                   -
                                                                                  -------------      --------------
                                                                                         39,469              55,276
     Less accumulated depreciation...........................................           (30,577)            (45,217)
                                                                                  --------------     ---------------
          Total..............................................................     $       8,892      $       10,059
                                                                                  ==============     ==============
</TABLE>

         Depreciation  charged to operations was $2.2 million,  $2.1 million and
$3.7 million in 1997, 1996 and 1995, respectively.  During the year, the Company
retired fixed assets with a gross value of $17.0 million and a net book value of
$0.1 million.

         In January 1996, the Company completed the sale of its real property in
Redwood City,  California for $36.0 million.  The net book value of the property
at the time of the sale  was  $26.2  million.  The  sale  resulted  in a gain of
approximately  $8.3  million.   Of  this  amount,   approximately  $2.4  million
represents  imputed  interest on the secured notes (and is being recognized over
the terms of the notes),  and $4.1 million is being  recognized over a five-year
period  representing  the  noncancelable  portion of two of the Company's leases
relating to the property.  The remaining $1.8 million is being deferred for four
years.  If, at that time, the Company  decides to continue the two leases for an
additional  six- to nine-year  period,  the $1.8 million will be recognized over
the  remaining  terms of the leases;  otherwise,  the $1.8  million gain will be
offset by lease  cancellation  fees of the same amount. At December 31, 1997 and
1996, the balance of the deferred gain was $4.4 and $5.2 million, respectively.

         In May 1996,  the Company  completed the sale of the smaller of its two
manufacturing  facilities in Colorado  Springs,  Colorado for $3.6 million,  and
realized a gain of $0.9 million on the sale.  The net book value of the property
at the time of the sale was $2.4 million.

Note 9 - Other Accrued Liabilities

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                      1997                1996
                                                                                      ----                ----
                                                                                           (in thousands)

<S>                                                                               <C>                <C>           
     Compensation and employee benefits......................................     $       6,213      $        6,552
     Pension.................................................................             6,339               5,435
     Warranty and other product costs........................................             1,363               2,337
     Customer deposits.......................................................               163                   -
     Other...................................................................             5,864               7,705
                                                                                  -------------      --------------
         Total...............................................................     $      19,942      $       22,029
                                                                                  =============      ==============
</TABLE>


691340.1                                   F-13    
     

<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 10 - Debt

                                                       December 31,
                                                 1997                1996
                                                 ----                ----
                                                      (in thousands)

         Notes Payable

     Working capital facilities..........    $         769      $          909
     Note payable - other................              164                 166
                                             -------------      --------------
                                             $         933      $        1,075
                                             =============      ==============

         Long-term Debt

     Working capital facilities..........    $           2      $          914
                                             -------------      --------------
                                             $           2      $          914
                                             =============      ==============

         Working Capital Facilities

         Ampex has a loan from a foreign bank and a revolving credit line with a
domestic financial institution to finance working capital requirements.  Average
borrowings  under  these  agreements  in 1997 were $1.2  million  at an  average
interest rate of 2.5%, and in 1996 were $2.3 million at an average interest rate
of 2.5%.  Maximum  borrowings  outstanding at any time during 1997 and 1996 were
$1.8  million and $3.3  million,  respectively.  At December  31, 1997 and 1996,
under  these  agreements  $0.8  million  and  $1.8  million  were   outstanding,
respectively.   The  Company's   domestic  revolving  credit  agreement  permits
borrowings up to $7.0 million,  based on eligible accounts receivable as defined
in the agreement, less a standby letter of credit facility in the amount of $2.5
million.  At December 31, 1997 under the  domestic  revolving  credit  agreement
there  was  $1,616  outstanding  and at  December  31,  1996  there  was  $4,669
outstanding.  The Company pays a monthly  commitment fee of 0.5% per annum based
on the average daily unused amount. The borrowings are collateralized by certain
current assets of the Company.

         Note Payable - Other

         The note is a non-interest  bearing demand promissory note held by NHI.
The  remaining  balance of $0.2  million at December  31, 1997 is expected to be
paid or converted to shares of Common Stock in 1998.

         Noncurrent Maturities of Long-Term Debt

         The following table summarizes the scheduled  noncurrent  maturities of
the Company's  long-term debt as of December 31, 1997,  for years  subsequent to
1998 :

                Year                                         (in thousands)
                ----                                         --------------

                1999.......................................   $          2


691340.1                                   F-14
<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 11 - Other Liabilities

                                                            December 31,
                                                      1997                1996
                                                      ----                ----
                                                           (in thousands)

     Pension....................................  $    31,510      $    18,370
     Reserve for contingent liabilities.........       27,015           27,015
     Other postemployment benefits..............        6,478            6,894
     Other......................................        5,705            7,954
                                                  -----------      -----------
         Total..................................  $    70,708      $    60,233
                                                  ===========      ===========

         The increase in the pension  liability was  attributable to an increase
in the minimum  pension  liability  resulting  from  adoption  of updated  group
mortality assumptions,  lowering the discount rate from 7.25% in 1996 to 7.0% in
1997 due to a decline in  long-term  interest  rates,  less the gain on the fair
value of the plan assets.
See Note 16.

Note 12 - Commitments and Contingencies

         Leases

         The Company  leases  certain  manufacturing  and office  facilities and
equipment  under  operating  lease  agreements.  As of December  31, 1997 future
annual lease obligations under leases with noncancellable  lease terms in excess
of one year were as follows:

                Year                                          (in thousands)

                1998.......................................   $      3,770
                1999.......................................          3,607
                2000.......................................          3,291
                2001.......................................          3,249
                2002.......................................            509
                Thereafter.................................          2,569
                                                              ------------
                                                              $     16,995

         Total rent  expense for all  operating  leases was $4.9  million,  $5.1
million and $2.9 million for the years ended  December 31, 1997,  1996 and 1995,
respectively.


691340.1                                   F-15


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 12 - Commitments and Contingencies  (cont'd.)

         In January 1996, the Company completed the sale of its real property in
Redwood  City,  California  and leased back a portion of the  property  from the
purchaser.  Future annual lease obligations,  included in the above table, under
two  lease  agreements  with   noncancellable   lease  terms  until  April  2001
approximates  $1.8 million per year. An additional  $1.8 million  representing a
potential lease termination penalty was included in the table above. The Company
funded $3.8 million of leasehold  improvements in 1996 which, with interest, was
refunded by the property owner through rent credits and a buy-out in 1997.  Rent
credits of $1.0 and $0.4  million were used in 1997 and 1996,  respectively.  In
October 1997, the property owner paid the balance of $2.7 million.

         The following is a schedule by years of future  minimum lease  payments
under  capital  leases  together with the present value of the net minimum lease
payments as of December 31, 1997:

             Year                                                 (in thousands)

             1998.......................................          $        143
             1999.......................................                    91
             2000.......................................                    23
             2001.......................................                    17
                                                                  ------------
             Net  minimum lease payments                                   274
             Less amount representing interest                             (46)
                                                                  ------------
             Present value of net minimum lease payments          $        228
                                                                  ============

         The gross book value and accumulated  depreciation of capital leases at
December 31, 1997 were $0.4 million and $0.1 million, respectively.

         Legal Proceedings

         The Company is  currently a defendant  in lawsuits  that have arisen in
the ordinary  course of its business.  Management does not believe that any such
lawsuits  or  unasserted  claims  will  have a  material  adverse  effect on the
Company's financial position, results of operations or cash flows.

         In addition,  certain  subsidiaries have been assessed income and value
added taxes together with penalties and interest by Italian tax authorities. The
Company has been  indemnified  by its former owner for costs of  defending  this
action  as well as for  payments  in excess of  certain  amounts  that have been
provided for in the accompanying financial statements.

         Environmental Matters

         The Company  currently is involved in various  stages of  investigation
and cleanup relative to environmental  protection matters,  some of which relate
to past disposal practices. Some of these matters are being overseen by state or
federal   agencies.   Management  has  recorded   certain   amounts  related  to
investigation and cleanup costs and believes that the final disposition of these
matters  will not have a  material  adverse  effect on the  Company's  financial
position, results of operations or cash flows.

         Guarantees

         The Company has certain arrangements with banks primarily to facilitate
the issuance of  performance  guarantees  or letters of credit.  At December 31,
1997 and 1996,  the Company was  contingently  liable for $2.4  million and $2.0
million,  respectively, of general performance guarantees and letters of credit.
The Company has not recorded  reserves for  potential  losses for these items at
December 31, 1997 and 1996.


691340.1                                   F-16


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 13 - Preferred Stock

         In February  1995,  the Company  completed a  refinancing  in which all
outstanding Redeemable Convertible Preferred Stock, which had an aggregate value
at January 31, 1995 of approximately $84.8 million,  was exchanged for shares of
a new series of 8%  Noncumulative  Redeemable  Preferred Stock with an aggregate
liquidation  value of $70.0 million and 11 million  shares of Common Stock.  The
transaction  eliminated  the  obligation  of the Company to accrue  dividends on
preferred stock unless dividends are declared on Common Stock and eliminated the
right of the holders of the Redeemable  Convertible  Preferred  Stock to convert
their shares into up to 27.9 million shares of Common Stock.

         The  Noncumulative  Redeemable  Preferred Stock is subject to mandatory
redemption after December  31, 1997,  out of funds  legally  available  therefor
(generally  the  excess of  assets  over  liabilities).  Mandatory  or  optional
redemption  payments  are payable in cash or, at the option of the  Company,  in
shares of Common Stock,  provided  that, as a condition to redemption in shares,
the average  market price of the Company's  Common Stock must have been at least
$4 per share  during the 10 trading  days  preceding  the notice of  redemption.
Common Stock issued to redeem the Preferred Stock shall be valued at 90% of fair
market  value.  As at December 31, 1997,  the Company did not have funds legally
available to redeem any of the Preferred Stock. As legally available funds begin
to be generated,  the Company will be required to redeem such shares  thereafter
to the extent funds become  legally  available  therefor,  and will be precluded
from declaring  dividends on its Common Stock until the Preferred Stock has been
redeemed.

Note 14 -  Related Party Transactions

         During  1997 and  1996,  the  Company  received  5-year  notes  for the
purchase of Common Stock by an affiliated  company in the  principal  amounts of
$838,750 and $2,200,000,  respectively.  The notes bear annual interest at 6.34%
and 6.72%, respectively, and are collateralized by the purchased shares. In June
1996,  the  Company  received  a partial  payment  on the notes  outstanding  of
$273,700. Note 15 - Common Stock, Stock Options and Warrants

         The Company's authorized capital stock consists of Class A Common Stock
("Class A Stock"),  Class C Common Stock ("Class C Stock", and collectively with
Class A Stock, the "Common Stock") and Preferred Stock.  Shares of Class C Stock
and Preferred Stock are generally nonvoting except in circumstances specified in
the Company's charter documents or as otherwise required by applicable corporate
law.  Accordingly,  holders of Class A Stock are generally the only stockholders
with voting rights. Each share of Class C Stock converts into one share of Class
A  Stock  automatically  following  transfer  unless  otherwise  elected  by the
transferee.

         The Company's 1992 Stock  Incentive Plan (the "Stock  Incentive  Plan")
for  directors,  executive  officers  and other key  employees  provides for the
granting of  "non-qualified  stock  options" and  "incentive  stock  options" to
acquire  Class A Stock  and/or  the  granting  of stock  appreciation  rights to
obtain,  in cash or shares of Class A Stock,  the benefit of the appreciation of
the value of shares of Class A Stock after the grant date.

         On January 10, 1995 the  Committee  approved  the  repricing of 104,000
options that had been granted on April 14, 1994 and 50,000 options that had been
granted on November 4, 1994 to an exercise  price of $1.50 per share,  which was
the fair market value of the stock on January 10, 1995.  Prior to the repricing,
the options had an exercise price of $2.375 per share.



691340.1                                   F-17


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 15 - Common Stock, Stock Options and Warrants (cont'd.)

         On  May  19,  1995,  at  the  Company's  Annual  Meeting,  stockholders
authorized the issuance of an additional  1,500,000  shares under the 1992 Stock
Incentive Plan, of which  1,100,000  shares had been authorized by the Company's
Board of Directors on June 16, 1994, and 400,000 had been authorized on December
16, 1994.

         On June  7,  1996,  at the  Company  `s  Annual  Meeting,  stockholders
authorized the issuance of an additional  2,000,000  shares under the 1992 Stock
Incentive  Plan.  The Company is currently  authorized  to issue up to 4,250,000
shares of Class A Stock under the Stock Incentive Plan.

         On October 28, 1997,  the Committee  authorized  the holders of 918,100
"out-of-the-money"  stock  options with exercise  prices  ranging from $3.625 to
$10.50,  to  voluntarily  elect to  cancel  those  options  in  exchange  for an
equivalent  number of new  options.  The new options were granted at an exercise
price of $3.125,  which was the fair  value of the Class A Stock on October  28,
1997,  and with new vesting and  expiration  schedules.  Of the 918,100  options
eligible for exchange,  option holders elected to exchange  664,250 options that
had exercise prices ranging from $4.875 to $10.50.

         At  December  31,  1997  there  were  2,309,865  options   outstanding,
including  1,404,725  vested  options.  The exercise  prices range from $1.50 to
$10.50 per share and vesting  schedules vary from  immediate  vesting to vesting
over a five-year period.

<TABLE>
<CAPTION>
                                                                                                      Weighted
                                   Shares            Number                Price       Aggregate      Average
                                 Available              of                 Per         Exercise       Exercise
                                 for Grant           Options               Share         Price         Price
                                 ---------           -------               -----         -----         -----


<S>                                  <C>             <C>             <C>             <C>              <C>      
Balances, December 31, 1994          455,500         1,794,500       $  1.50-6.00    $   3,354,001    $    1.87
Granted                             (517,400)          517,400          1.50-3.69        1,475,825         2.85
Canceled                             297,560          (297,560)         1.50-2.38         (637,178)        2.14
Exercised                                               (7,900)              2.38          (18,763)        2.38

                                   ---------         ---------       ------------    -------------    ---------
Balances, December 31, 1995          235,660         2,006,440       $  1.50-3.69    $   4,173,885    $    2.08
Authorized                         2,000,000
Granted                             (914,750)          914,750         3.75-10.50        6,781,750         7.41
Canceled                             129,390          (129,390)         1.50-6.44         (390,054)        3.01
Exercised                                             (394,900)         1.50-3.63         (800,350)        2.03

                                   ---------         ---------       ------------    -------------    ---------
Balances, December 31, 1996        1,450,300         2,396,900       $ 1.50-10.50    $   9,765,231    $    4.07
Granted                             (990,000)          990,000          2.38-7.94        3,789,813         3.83
Canceled                             899,745          (899,745)        1.50-10.50       (6,023,836)        6.70
Exercised                                             (177,290)         1.50-5.75         (384,298)        2.17

                                   ---------         ---------       ------------    -------------    ---------
Balances, December 31, 1997        1,360,045         2,309,865       $ 1.50-10.50    $   7,146,910    $    3.09
                                   =========         =========       ============    =============    =========
</TABLE>

         For the years ended  December 31, 1997 and 1996,  the weighted  average
fair value of options granted was $2.76 and $5.17 per share, respectively.

         At  December  31, 1997 and 1996,  there were no  warrants  outstanding.
During 1996 and 1995, there were 1,699,499 and 1,344,985  shares,  respectively,
of Common Stock at $0.01 per share issued on the exercise of warrants.


691340.1                                   F-18  

<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 15 - Common Stock, Stock Options and Warrants (cont'd.)

         The Company has elected to account for employee stock options using the
intrinsic value method prescribed by APB 25, and therefore compensation cost for
stock  options is measured as the excess,  if any, of the quoted market price of
the  Company's  stock at the date of the grant over the amount an employee  must
pay to acquire the stock.  Had compensation  cost for the Company's  stock-based
compensation  plan been  determined  on the fair  value of the  grant  dates for
awards under those plans  consistent  with the method of SFAS 123, the Company's
net income and diluted income per share would have been reduced to the pro forma
amounts indicated below :

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                              1997           1996             1995
                                                                              ----           ----             ----
                                                                                        (in thousands)

<S>                                                                    <C>              <C>               <C>         
Net income :
         As reported..............................................     $      14,803    $      12,741     $     63,293
                                                                       -------------    -------------     ------------
         Pro forma................................................     $      12,360    $      11,616     $     63,118
                                                                       -------------    -------------     ------------

Diluted income per share :
         As reported..............................................     $       0.32     $        0.28     $       1.40
                                                                       ------------     -------------     ------------
         Pro forma................................................     $       0.27     $        0.26     $       1.39
                                                                       ------------     -------------     ------------
</TABLE>

         The above proforma  disclosures are not necessarily  representative  of
the effects on reported net income (loss) for future years.

     The fair  values of  options at the date of grant was  estimated  using the
Black-Scholes model with the following weighted average assumptions:

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                              1997           1996             1995
                                                                              ----           ----             ----

<S>                                                                         <C>            <C>               <C> 
         Expected life (years)....................................          1.5 - 5.5      1.67-5.0          1.0-4.0
                                                                         -------------    ------------     -----------

         Risk-free interest rate..................................          5.6-6.54%      5.2-6.7%         5.6-7.9%
                                                                         -------------    ------------     -----------

         Expected volatility......................................          0.85-1.41      1.38-1.46        1.49-1.61
                                                                         -------------    ------------     -----------

         Expected dividend yield..................................                  -              -                -
                                                                         -------------    ------------     -----------
</TABLE>

         The options outstanding and currently  exercisable by exercise price at
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                                                                        Options Currently
                             Options Outstanding                                           Exercisable
                             -------------------                                           -----------
                                             Weighted
                                               Average        Weighted                              Weighted
                                            Remaining          Average                               Average
     Exercise            Number             Contractual        Exercise              Number          Exercise
      Prices          Outstanding                Life            Price             Exercisable        Price
      ------          -----------                ----            -----             -----------        -----

<S>                     <C>                      <C>           <C>                  <C>              <C>     
   $1.50-$2.38          1,080,840                6.40          $  1.74              1,070,340        $   1.74
   $3.13-$6.06          1,104,025                4.22             3.70                235,033            4.33
   $6.13-$7.94             35,000                1.89             6.84                  9,352            6.88
        $10.50             90,000                1.20            10.50                 90,000           10.50
                        ---------                ----          -------              ---------         -------
                        2,309,865                5.09          $  3.09              1,404,725         $  2.77
                        =========                ====          =======              =========         =======
</TABLE>

691340.1                                   F-19


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


 Note 16 - Pension Plans

         The   Company's   domestic   employees   participate   in  a  qualified
noncontributory  defined  benefit  pension plan.  Benefits are based on years of
service and salary levels during the highest 60  consecutive  months of the last
120 consecutive  months of service.  In early 1994, the Company amended the plan
to terminate benefit service and compensation  credit accruals as of February 1,
1994. The impact of this curtailment was not material to the Company's liability
accounts  relating  to its  pension  plan.  Certain of the  Company's  employees
employed by its foreign  subsidiaries are covered by contributory  pension plans
maintained and funded in accordance with local laws.

         Pension  expense for the domestic plan in 1997, 1996 and 1995 consisted
of the following:

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                       1997             1996              1995
                                                                       ----             ----              ----
                                                                                   (in thousands)

<S>                                                               <C>               <C>              <C>           
     Service cost...........................................      $            -    $           -    $            -
     Interest on projected  benefit obligation..............              11,389           11,500            11,723
     Actual return on assets................................              (7,673)         (22,061)          (11,313)
     Amortization of unrecognized prior service costs.......              (4,401)          10,481                 -
                                                                  ----------------  ---------------  --------------
         Net periodic pension cost (benefit)................      $         (685)   $         (80)   $          410
                                                                  ===============   ===============  ==============
</TABLE>

         The  domestic   plan  funded   status  and  amounts   included  in  the
consolidated balance sheets are as follows:

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                      1997                1996
                                                                                      ----                ----
                                                                                           (in thousands)

<S>                                                                               <C>                <C>           
     Actuarial present value of benefits:
         Vested..............................................................     $     178,171      $      164,027
         Nonvested...........................................................               658                 606
                                                                                  -------------      --------------
           Total accumulated benefits........................................     $     178,829      $      164,633
                                                                                  =============      ==============
     Projected benefit obligation............................................     $    (178,829)     $     (164,633)
     Less: plan assets at fair value.........................................           144,705             144,848
                                                                                  -------------      --------------
                                                                                        (34,124)            (19,785)

     Unrecognized net loss...................................................                 -                   -
     Tax benefit of excess pension liability.................................                 -                   -
                                                                                  --------------     --------------
Accrued pension cost.........................................................     $     (34,124)     $      (19,785)
                                                                                  ==============     ===============
</TABLE>

         In connection with the sale of Media, the Company became the sponsor of
the Media pension plan,  and its ultimate  liability  will remain the same as it
was prior to the sale.  Media has agreed to provide  continued  funding  for the
plan,  but if it fails to do so, the Company  may be  required  to make  funding
payments or to make any required termination  liability payments. As of December
31, 1997, the Company's  consolidated  balance  sheets  included $1.9 million in
"other  liabilities" for the Media plan's  underfunded  status. The Media plan's
projected  benefit  obligation and plan assets at fair value were  approximately
$39.7 million and $36.2 million, respectively.


691340.1                                   F-20


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 16 - Pension Plans (cont'd.)

         Actuarial assumptions as of December 31, 1997 and 1996 are as follows:
                                                                December 31,
                                                          1997              1996
                                                          ----              ----
               Assumed discount rate...................... 7.0%            7.25%
               Rate of compensation increase..............  N/A              N/A
               Expected long-term rate of return.......... 9.0%             9.0%

         Assets of the domestic pension plan are invested in directed trusts. At
December  31,  1997 and  1996,  assets of the  directed  trusts  were  primarily
invested in U.S. government obligations, corporate stocks and bonds and units of
common  investment funds consisting of short-term  interest bearing  instruments
and common stock.

         In accordance with Statement of Financial  Accounting Standards No. 87,
the Company  has  recorded  an  additional  minimum  pension  liability  for the
underfunded  plan of $29.6  million at December  31,  1997 and $10.5  million at
December  31,  1996,  representing  the excess of unfunded  accumulated  benefit
obligations  over previously  recorded pension cost  liabilities.  To the extent
that these additional liabilities exceed related unrecognized prior service cost
and net  transition  obligations,  the  increase or decrease in  liabilities  is
charged directly to stockholders'  deficit.  For 1997 and 1996, $19.1 and $(3.1)
million, respectively, was charged (credited) to stockholders' deficit.

         The components of foreign pension expense were as follows:
<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                       1997             1996              1995
                                                                       ----             ----              ----
                                                                                   (in thousands)
<S>                                                               <C>               <C>              <C>           
     Service cost...........................................      $           41    $       1,225    $           88
     Interest cost..........................................                 127              136               664
     Return on assets.......................................                   -                -            (1,695)
     Amortization and deferral..............................                  10               13               969
                                                                  --------------    -------------    --------------
         Net periodic pension cost (benefit)................      $          178    $       1,374    $           26
                                                                  ==============    =============    ==============
</TABLE>

         The  reconciliation  of the funded  status of the  foreign  plans is as
follows:

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                   1997                           1996
                                                                   ----                           ----
                                                              Plans In Which                 Plans In Which
                                                          Assets       Accumulated      Assets         Accumulated
                                                          Exceed        Benefits        Exceed          Benefits
                                                        Accumulated      Exceed       Accumulated        Exceed
                                                         Benefits        Assets        Benefits          Assets
                                                         --------        ------        --------          ------
                                                                              (in thousands)
<S>                                                   <C>              <C>            <C>            <C>         
    Actuarial present value of benefits:
      Vested.......................................   $          -     $     1,630    $          -   $      1,710
      Nonvested....................................              -              20               -            125
                                                      ------------     -----------    ------------   ------------
        Total accumulated benefits.................   $          -     $     1,650    $          -   $      1,835
                                                      ============     ===========    ============   ============

    Projected benefit obligation...................   $          -     $    (1,823)   $          -   $     (2,034)
    Less:  plan assets at fair value...............              -               -               -              -
                                                      ------------     -----------    ------------   ------------
                                                                 -          (1,823)              -         (2,035)
    Remaining unrecognized transition
      net (asset) obligation.......................              -            (115)              -            (65)
                                                      ------------     ------------   ------------   -------------
    Prepaid (accrued) pension cost.................   $          -     $    (1,938)   $          -   $     (2,099)
                                                      ============     ============   ============   =============
</TABLE>

691340.1                                   F-21


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 16 - Pension Plans (cont'd.)

         Effective July 1, 1996, the United Kingdom defined benefit pension plan
was terminated and replaced by a new defined  contribution  retirement plan. Due
to the  termination,  there was no accrued or prepaid  pension cost remaining at
December  31, 1996 and service  cost  included  the amount  which  reflects  all
components of the prorated net pension cost.

         The Company also  maintains a 401(k) savings plan available to domestic
employees.  The Company matches certain portions of employee contributions after
one year of service.  Contributions  and expenses in  connection  with this plan
amounted to $0.7  million,  $0.8  million  and $0.7  million for the years ended
December 31, 1997, 1996 and 1995, respectively.

Note 17 - Royalty Income

         In  1997,   1996  and  1995,   the  Company   received  and  recognized
non-recurring   royalty  payments  attributable  to  the  settlement  of  patent
litigation and other negotiated  settlements  related to prior sales of products
by  licensees.  Such  non-recurring  royalties  amounted to $4.6  million,  $2.0
million and $10.5 million in 1997, 1996 and 1995,  respectively.  The balance of
royalties  earned in these years represents  royalties for product  shipments in
the current period.

Note 18 - Restructuring Charges  (Credits)

         In  connection  with the  Company's  decision to refocus  its  business
toward  mass  data  storage  products  and to  narrow  its  product  line in its
traditional  television markets, the Company began to restructure  operations in
1990. These efforts were essentially completed by the end of 1994.

         Restructuring  charges  (credits) for the years ended December 31, 1997
and 1996 consist of the following :

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                       1997             1996              1995
                                                                       ----             ----              ----
                                                                                   (in thousands)

<S>                                                               <C>               <C>              <C>            
     Provisions for vacated lease obligations.................    $       (2,603)   $       (200)    $       (1,480)
     Write-down of property, plant and equipment..............               858               -                  -
     Provisions for employee separation costs.................                86               -                  -
     Costs associated with closure of foreign
         subsidiaries.........................................                 -            (253)            (1,000)
                                                                  --------------    -------------    ---------------

                                                                  $       (1,659)   $       (453)    $       (2,480)
                                                                  ===============   =============    ===============
</TABLE>

         In 1997,  1996 and 1995 excess  accruals of $2.6, $0.5 and $2.5 million
(reflecting  lower  than  anticipated   expenses  for  the  closure  of  foreign
subsidiaries and lease obligations) were credited to operating income.

         Accruals for  restructuring  costs totaled $3.3 million at December 31,
1997 including $2.4 million relating to vacated or abandoned leases.


691340.1                                   F-22

<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 19- Income Taxes

         Income from continuing  operations before income taxes for domestic and
foreign operations consisted of the following:

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                       1997             1996              1995
                                                                       ----             ----              ----
                                                                                   (in thousands)

<S>                                                               <C>              <C>              <C>        
     Domestic ................................................    $   15,389       $    16,016      $    20,822
     Foreign  ................................................           921            (1,621)            (494)
                                                                  -----------      -----------      -----------
                                                                  $   16,310       $    14,395      $    20,328
                                                                  ===========      ===========      ===========
</TABLE>



         The provision for income taxes consisted of the following:

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                       1997             1996              1995
                                                                       ----             ----              ----
                                                                                   (in thousands)

<S>                                                               <C>               <C>              <C>            
     Current:
         Federal..............................................    $          (77)   $         178    $         (500)
         State................................................               (24)              92                50
         Foreign..............................................               358              312                 5
         Foreign withholding taxes on royalty
           income.............................................             1,250            1,072             1,366
                                                                  --------------    -------------    --------------
                                                                           1,507            1,654               921
                                                                  --------------    -------------    --------------

     Deferred:
         Federal..............................................                 -                -                 -
         Foreign..............................................                 -                -                 -
                                                                  --------------    -------------    --------------
                                                                  $        1,507    $       1,654    $          921
                                                                  ==============    =============    ==============
</TABLE>

         The difference between taxes computed by applying the statutory federal
corporate  income tax rate  (effective for 1997,  1996, and 1995) to income from
continuing  operations  before income taxes and the actual  provision for income
taxes was as follows:

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                       1997             1996              1995
                                                                                   (in thousands)

<S>                                                                        <C>             <C>           <C>           
     Federal income tax  provision
         at statutory rate....................................             5,709           $    5,038    $        7,114
     Foreign losses not benefited.............................                 -                  879               178
     Rates in excess of U.S...................................               972                  951             1,605
     Temporary differences not previously benefited...........            (4,254)              (2,286)           (7,534)
     Net operating losses not previously benefited............              (769)              (3,205)                -
     Other, net...............................................              (151)                 277              (442)
                                                                      ----------           ----------    --------------
                                                                      $    1,507           $    1,654    $          921
                                                                      ==========           ==========    ==============
</TABLE>


691340.1                                   F-23


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 19 - Income Taxes (cont'd.)

         An income tax liability of $1.1 million,  representing  the alternative
minimum tax due on the  disposition of Media,  has been  recognized  against the
gain of business held for disposition in 1995.

         The following  table shows the major  components of the deferred income
tax assets and liabilities as of December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                    1997              1996
                                                                                    ----              ----
                                                                                          (in thousands)

<S>                                                                             <C>                 <C>        
     Inventory basis differences...........................................     $       5,608       $     5,996

     Restructuring reserves and other liabilities not yet
         deductible for tax purposes.......................................            12,158            17,910

     Loss carryforwards....................................................            34,998            33,360

     Foreign withholding taxes on undistributed earnings
         of foreign subsidiaries...........................................            (1,267)           (1,314)

     Property, plant and equipment
         basis differences ................................................               721                73

     Credit from prior year's minimum tax..................................             1,235             1,315

     Other  ...............................................................             8,770             8,909

     Less valuation allowance..............................................           (63,490)          (67,563)
                                                                               --------------      ------------ 


            Deferred tax liability.........................................    $       (1,267)     $     (1,314)
                                                                               ==============      ============ 
</TABLE>

         A valuation  allowance has been  established to reduce the deferred tax
asset to the amount expected to be realized.

         As  at  December  31,  1997,   the  Company  had  net  operating   loss
carryforwards  for income tax purposes of $100.0  million  expiring in the years
2005 through 2009. As a result of the financing transactions that were completed
in April 1994 and  February  1995,  the  Company's  ability  to utilize  its net
operating   losses  and  credit   carryforwards  as  an  offset  against  future
consolidated   federal  income  tax  liabilities   will  be  restricted  in  its
application,  which will result in a material  amount of the net operating  loss
never being utilized by the Company.


691340.1                                   F-24


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 20- Foreign Operations

     The following  table shows certain  financial  information  relating to the
Company's continuing operations in various geographical areas:

<TABLE>
<CAPTION>
                                                                               Year ended December 31,
                                                                       1997             1996              1995
                                                                       ----             ----              ----
                                                                                   (in thousands)

<S>                                                               <C>               <C>              <C>           
     Net Sales:
         United States........................................    $       73,441    $      92,711    $       91,908
         Europe, Africa and the Middle East...................            16,338           20,744            21,324
         Other foreign........................................             3,124            4,884             5,572
         Eliminations (1).....................................           (12,592)         (21,854)          (23,142)
                                                                  ---------------   --------------   ---------------
                 Total........................................    $       80,311    $      96,485    $       95,662
                                                                  ================  ===============  ==============
</TABLE>


(1) Inter-area sales, primarily from the United States.


<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                       1997             1996              1995
                                                                       ----             ----              ----
                                                                                   (in thousands)

<S>                                                               <C>               <C>              <C>           
     Income before income taxes:
         United States........................................    $        6,699    $       8,918    $        9,256
         Europe, Africa and the Middle East...................               498            1,352             3,704
         Other foreign........................................               905              350             1,116
         Royalties............................................            12,550           10,497            15,006
         Eliminations and corporate expenses..................            (4,342)          (6,722)           (8,754)
                                                                  ---------------   --------------   --------------
                 Total........................................    $       16,310    $      14,395    $       20,328
                                                                  ==============    ==============   ==============


                                                                                        Year Ended December 31,
                                                                                        1997              1996
                                                                                        ----              ----
                                                                                            (in thousands)

     Identifiable assets:
         United States..........................................................    $      34,488    $       48,521
         Europe, Africa and the Middle East.....................................            5,448             6,565
         Other foreign..........................................................            1,094             1,484
         Eliminations and corporate assets......................................           40,641            27,922
                                                                                    -------------    --------------
                 Total..........................................................    $      81,671    $       84,492
                                                                                    =============    ==============
</TABLE>

         Transfers  between  geographic  areas  are at  cost  plus a  reasonable
profit.  Sales from the  United  States  include  export  sales to  unaffiliated
customers of $5.6 million, $7.3 million and $7.1 million in 1997, 1996 and 1995,
respectively.  Identifiable  assets  are  classified  by  the  location  of  the
Company's  facilities  and include  cash,  accounts  receivable,  inventory  and
property,  plant and equipment.  Corporate assets consisted  principally of cash
and short-term investments at December 31, 1997 and 1996.


691340.1                                   F-25


<PAGE>



                                AMPEX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


Note 21 - Major Customers

         Direct and indirect sales to various U.S.  government agencies amounted
to approximately  $22.3 million,  $17.4 million and $14.0 million for 1997, 1996
and  1995,  respectively.  In  1997,  1996 and  1995 no  other  single  customer
accounted for more than 10% of total net sales.

Note 22 - Subsequent Event

         In January 1998,  the Company issued $30.0 million 12% Senior Notes due
March 15, 2003,  together with warrants to purchase 1,020,000 Common Shares. The
warrants are exercisable at $2.25 per share at any time on or prior to March 15,
2003.  The  warrants,  if exercised,  would  represent  approximately  2% of the
Company's  Common Shares on a diluted basis. The indenture under which the Notes
were issued contains customary  affirmative and negative  restrictive  covenants
that limit,  among other things,  the incurrence of additional  senior debt, the
payment of  dividends,  the sale of assets and other  actions by the Company and
certain  restricted  subsidiaries.  Under such  indenture  the  Company  may, in
general,  issue  additional  senior debt,  without meeting certain fixed charges
coverage tests,  up to $15.0 million.  The Company has no present plans to issue
any  such  additional   debt,  but  may  do  so  in  the  future  if  investment
opportunities are subsequently identified that require additional capital funds.

Note 23 - Quarterly Financial Information (Unaudited)

         The  following  is a  summary  of  the  unaudited  quarterly  financial
information for the years ended December 31, 1997 and 1996.

<TABLE>
<CAPTION>
                                                                (In thousands, except share data)


Fiscal 1997
Quarters ended                                    March 31            June 30         Sept. 30           Dec. 31
--------------                                  ----------        -----------       ----------       -----------
<S>                                                <C>               <C>              <C>               <C>     
Net sales                                          $  21,081         $ 21,299         $  18,182         $ 19,749
Gross profit                                          10,519           10,618             8,232            9,802
Net income                                             4,944            2,336             2,604            4,919

Basic and diluted income per share                 $    0.11         $   0.05         $    0.06         $   0.11

Fiscal 1996
Quarters ended                                    March 31            June 30         Sept. 30           Dec. 31
--------------                                  ----------        -----------       ----------       -----------
Net sales                                          $  24,232         $ 24,420         $  23,604         $ 24,229
Gross profit                                          10,861           10,902            11,022           11,293
Net income                                             3,473            3,972             3,103            2,193

Basic and diluted income per share                 $    0.09         $   0.09         $    0.07         $   0.05
</TABLE>


691340.1                                   F-26

<PAGE>



                                AMPEX CORPORATION



                      INDEX TO FINANCIAL STATEMENT SCHEDULE






                                                                            Page


Report of Independent Accountants on Financial Statement Schedule.........   S-2




Schedule II       - Valuation and Qualifying Accounts.....................   S-3





                                       S-1

DOCUMENT NO. 691346.1


<PAGE>








REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE


Board of Directors and Stockholders
Ampex Corporation

Our report on the consolidated financial statements of Ampex Corporation is
included on page F-2 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on page S-1 of this Form 10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.




COOPERS & LYBRAND L.L.P.

San Francisco, California
February 20 , 1998



                                       S-2
DOCUMENT NO. 691349.1

<PAGE>



                                AMPEX CORPORATION
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)




<TABLE>
<CAPTION>
                                     Balance at     Additions      Charges to                       Balance at
                                    beginning of     cost and         other                           end of
Description                            period        expenses       accounts   (1) (Deductions) (2)   period
-----------                        -------------  -------------   ------------    -------------   -------------



<S>                                 <C>             <C>            <C>             <C>              <C>        
Allowance for doubtful
     accounts and sales returns



December 31, 1995                   $      5,404    $      (858)   $      (221)    $     (1,784)    $     2,541
-----------------

December 31, 1996                   $      2,541    $      (192)   $       (94)    $        (14)    $     2,241
-----------------

December 31, 1997                   $      2,241    $      (395)   $       (67)    $       (295)    $     1,484
-----------------


Allowance for obsolete and
     slow moving inventory



December 31, 1995                   $     29,477    $     1,930    $     1,958     $     (7,692)    $    25,673
-----------------

December 31, 1996                   $     25,673    $      (362)   $         -     $     (5,234)    $    20,077
-----------------

December 31, 1997                   $     20,077    $        25    $        (3)    $     (4,470)    $    15,629
-----------------
</TABLE>




------------------------------------

(1) Includes transfers and reclassifications to other accounts.

(2) Includes write-offs of accounts receivable and inventories.



                                      S-3

<PAGE>



                        SIGNATURES AND POWER OF ATTORNEY

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                    AMPEX CORPORATION

                                    By:     /s/ Edward J. Bramson
                                            ---------------------
                                            Edward J. Bramson
                                            Chairman and Chief Executive Officer

                                    Date:   March 13, 1998

         KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint Edward J. Bramson, Joel D.
Talcott, Vicki Gruber Callahan or any of them, with full power to act, his
attorney-in-fact, with the power of substitution for him in any and all
capacities, to sign any or all amendments to this report, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                           Title                                                 Date

<S>                                 <C>                                                   <C> 
/s/ Edward J. Bramson               Chairman, Chief Executive Officer                     March 13, 1998
---------------------
Edward J. Bramson                   and Director (Principal Executive Officer)


/s/ Craig L. McKibben               Vice President, Chief Financial Officer,              March 13, 1998
---------------------
Craig L. McKibben                   Treasurer and Director
                                    (Principal Financial Officer and
                                    Principal Accounting Officer)


/s/ Douglas T. McClure, Jr.         Director                                              March 13, 1998
---------------------------
Douglas T. McClure, Jr.


/s/ Peter Slusser                   Director                                              March 13, 1998
Peter Slusser


/s/ William A. Stoltzfus, Jr.       Director                                              March 13, 1998
-----------------------------
William A. Stoltzfus, Jr.
</TABLE>

679833.6
                                      -33-

<PAGE>


                                AMPEX CORPORATION

                                 1997 FORM 10-K

                                  EXHIBIT INDEX

Exhibit
Number                     Description
------                     -----------


10.3              Ampex Systems Corporation Savings Plan (1997 Restatement).

10.4              Ampex  Systems  Corporation  Employees'  Retirement  Plan,  as
                  amended and restated as of January 1, 1997.

10.20             Stock  Purchase  Agreement,  dated  as of  October  29,  1997,
                  between the Registrant and Edward J. Bramson.

10.21             Stock  Purchase  Agreement,  dated  as of  November  7,  1997,
                  between the Registrant and Edward J. Bramson.

10.22             Stock Purchase Agreement dated as of February 18, 1998 between
                  the Registrant and Edward J. Bramson.

21.1              Subsidiaries of the Company.

23.1              Consent of Independent Accountants.

25.1              Power of  Attorney  (included  in the  signature  page of this
                  Report).

27.1              Financial Data Schedule.



679833
